On Tuesday, market players showed cautious optimism amid doubts over Trump’s tariffs, Ukraine’s alleged peace efforts, and Fed Chair Jerome Powell’s “wait and see” approach. This led to a brief US Dollar pause ahead of the CPI release on Wednesday. However, rising geopolitical tensions with Iran and opposition to Trump’s trade policies in the Eurozone and China have kept the market's risk appetite in check.
Meanwhile, some Fed officials sound hawkish, and the early inflation clues have also signaled an uptick in price pressure, which in turn restricts the US Dollar’s fall and challenges other major currencies, Antipodeans, and commodities.
Gold extends its pullback from the record high, while crude oil snaps a three-day winning streak. Further, cryptocurrencies remain indecisive, whereas equities struggle to defend the previous day’s rebound.
Headlines about Ukraine’s peace talks with Russia, supported by the US, caused EURUSD to surge the most in two weeks. However, the pair retreated early Wednesday as the US Dollar recovered ahead of the key January US CPI data. Additionally, ECB officials remain dovish and EU policymakers clash with the US over trade tariffs create extra challenges for the Eurozone economy and EURUSD buyers.
GBPUSD bounced back from a three-day losing streak, driven by US Dollar weakness, despite downbeat comments from Bank of England's Catherine Mann and Governor Andrew Bailey about weak demand and market challenges. However, the Pound lacked momentum early Wednesday as markets remained uncertain and the Dollar showed signs of strength.
Meanwhile, USDJPY rose for the fourth straight day, hitting a one-week high. This movement came despite hawkish comments from Bank of Japan's Kazuo Ueda, as concerns over US steel tariffs and Japan intervention kept the yen under pressure.
Fears over steel and aluminum tariffs on Australia, fueled by comments from Trump’s trade adviser Navarro, combined with weak Aussie data and a dovish Reserve Bank of Australia (RBA) bias, put downward pressure on AUDUSD despite mixed US Dollar movements.
NZDUSD followed its Australian counterpart with little domestic influence, while USDCAD struggled to gain momentum as markets awaited more insights into US-Canada relations and the Bank of Canada’s next steps. Crude oil's pause in its three-day rally also limited USDCAD's movement, as oil is Canada's biggest export.
Uncertainty surrounding China continues to impact commodity-linked currencies like the Australian, New Zealand, and Canadian Dollars.
Ahead of the US CPI release and with the US Dollar pausing its decline, traders reassessed their Gold positions at record highs, leading to a pullback for the second day in a row on Wednesday.
Meanwhile, easing geopolitical tensions and a higher API inventory build ended Crude Oil’s three-day winning streak. The cautious mood before the US CPI and upcoming weekly inventory data also weighed on energy buyers.
Bitcoin (BTCUSD) and Ethereum (ETHUSD) are stuck in a trading range this week with little movement, as traders wait for US inflation data. Still, optimism from Trump-related news and hopes of a short-squeeze keep buyers hopeful.
Market participants will focus on the US Consumer Price Index (CPI) for January, as mixed signals from the Federal Reserve (Fed) have recently impacted the US Dollar. Additionally, the second round of Fed Chair Powell's testimony, weekly US oil inventory data, and news about Ukraine, Trump tariffs, and Iran will influence the markets.
Headlines suggest a slightly softer US inflation, which could extend the US Dollar's recent pullback, unless Powell makes hawkish statements. However, there's still a chance of a positive surprise, and Powell may stick to a hawkish stance. This could support the US Dollar while weighing on EURUSD, GBPUSD, and currencies from Australia and New Zealand. Gold could see upward momentum, but Crude Oil may face selling pressure due to rising inventories. USDJPY might dip, while equities and cryptocurrencies are likely to stay within their current range.
May the trading luck be with you!
