Trading sentiment is mildly positive early Wednesday as markets react to slightly softer U.S. inflation data, mixed Federal Reserve (Fed) commentary, trade-related optimism, talks of Japan stimulus, and cautious optimism from the World Bank. However, concerns around Iran, Greenland, and caution ahead of today’s U.S. Producer Price Index (PPI) and Retail Sales data are limiting upside momentum.
U.S. December Consumer Price Index (CPI) data showed inflation broadly in line but slightly softer at the core level. Headline CPI Year-on-Year (Y/Y) came in at +2.7% versus 2.7% expected, unchanged from the prior reading, while CPI Month-on-Month (M/M) was +0.3% versus 0.3% expected, also unchanged.
More importantly, Core CPI Y/Y eased to +2.6% versus +2.7% expected, matching the prior figure, while Core CPI M/M rose +0.2% versus +0.3% expected, unchanged from the prior month. U.S. Supercore CPI M/M slowed to +0.29% from +0.35%.
This lower-than-expected core inflation was seen as a dovish surprise, lifting market expectations for Fed rate cuts to 57 basis points (bps) by year-end from 52 bps previously.
Elsewhere, U.S. labor market data showed the ADP four-week moving average of private employment at 11.75K versus 11.5K prior, with U.S. private employers adding an average of 11,750 jobs per week. Job growth edged up slightly from the prior week, though figures remain preliminary. U.S. New Home Sales for October rose to 0.737 million versus a 0.720 million estimate. Meanwhile, the U.S. December budget deficit came in at $145 billion versus a $150 billion estimate, wider than the $87 billion deficit a year ago, keeping pressure on U.S. debt and Treasury supply.
Richmond Federal Reserve President Tom Barkin said inflation is easing gradually, labor market risks remain contained, and stressed the importance of central bank independence amid political pressure on the Fed. He highlighted encouraging inflation data but warned tariff-related costs remain a risk.
St. Louis Fed President Alberto Musalem reiterated a patient policy stance, projecting above-potential U.S. growth, a stable labor market, and policy rates near neutral by 2026.
President Donald Trump criticized the Fed Chair and said he would appoint a new chair in the coming weeks. On Iran, he warned Americans to stay away, adding uncertainty to geopolitical risks. Trump also said he wants oil prices around $53 per barrel, even as crude oil trades near $61.19, up about 2.82% on the day.
Energy markets faced fresh risks after drone strikes hit oil tankers in the Black Sea near the Yuzhnaya Ozereyevka terminal, a key export hub for Kazakhstan’s crude, raising concerns over global supply security.
The World Bank lifted its global growth outlook slightly but warned the world faces its weakest growth decade since the 1960s. Global GDP growth is forecast at 2.6% in 2026, down from 2.7% in 2025, before rising to 2.7% in 2027, with upgrades driven by stronger advanced economy performance, but growth is still too weak to meaningfully reduce poverty.
U.S. eased export restrictions on Nvidia H200 chips to China under strict case-by-case licensing rules, supporting Nvidia shares. China reported stronger-than-expected December trade data, with exports up 6.6% Y/Y and imports up 5.7% Y/Y, pushing the December trade surplus to $114.1 billion and confirming solid full-year trade growth.
In Japan, Bank of Japan (BoJ) Governor Kazuo Ueda said interest rates will continue to rise if economic and price trends align with forecasts and wages rise moderately. However, the Reuters Tankan survey showed manufacturers’ sentiment fell to a six-month low. Japanese stocks hit record highs as speculation grew that Prime Minister Sanae Takaichi may call a snap election on February 8, weakening the yen. The BoJ announced a February 26, 2026, meeting to discuss market operations, while a 5-year Japanese Government Bond (JGB) auction showed steady demand despite higher yields.
New Zealand data showed Building Permits rose 2.8% M/M in November and 13.5% Y/Y, while the ANZ commodity index fell as dairy prices weakened despite record meat and wool prices.
The oil market data showed a larger-than-expected crude inventory build per the private American Petroleum Institute (API) source.
The U.S. Dollar Index (DXY) remains range-bound, with EURUSD and GBPUSD trading sideways, USDJPY rising for a seventh straight day to an 18-month high, AUDUSD and NZDUSD posting modest gains, and USDCAD slightly weaker. Crude oil paused after a four-day rally at a 10-week high, Gold stayed firm near record levels, and Silver hit a new ATH. Bitcoin (BTC) and Ethereum (ETH) consolidated after sharp recent gains, while Asia-Pacific equities edged higher even as Wall Street closed slightly lower.
EURUSD stays range-bound for the fourth day as traders await today’s key U.S. data amid mixed risk signals. Rising geopolitical tensions around Ukraine and Greenland are also limiting movement in the Euro pair. Still, softer U.S. inflation and a mixed Federal Reserve (Fed) stance support cautious optimism among buyers, even as the Eurozone economic calendar remains light.
GBPUSD lacks clear direction and follows its European peers, staying within a narrow trading range while drawing mild support from a slight U.S. Dollar pullback. In contrast, USDJPY grabs attention as it rises for the seventh straight day to the highest level since July 2024. Talk of Japan stimulus, doubts over Bank of Japan (BoJ) rate hikes, and mixed Japan sentiment data, combined with a technical breakout, have driven the Yen pair to a multi-month high amid subdued markets ahead of key U.S. data.
AUDUSD and NZDUSD stay mildly bid, while USDCAD reverses the previous day’s corrective bounce, as strong China data, a softer U.S. Dollar, and cautious market optimism supported by the World Bank report and the absence of major geopolitical tensions lift sentiment. Even so, the commodity-linked currencies, known as the Antipodeans, remain confined within a short-term trading range.
Gold posts modest gains to reverse the previous day’s pullback, while Silver hits another all-time high as markets rush toward traditional safe havens during uncertain times. A softer U.S. Dollar, rising institutional demand, support from the World Bank report, and technical breakouts are also boosting the precious metals.
WTI crude oil pauses its four-day rally near the highest level since early November 2025 as markets reassess fresh supply risks against concerns over global energy demand. Expectations of Russia’s possible return to the energy market, additional supplies from Venezuela, and steady OPEC+ output are also weighing on the previous upside in crude oil.
Elsewhere, Bitcoin (BTC) trades sideways with a mild negative bias after posting its biggest daily rise in six weeks, while Ethereum (ETH) moves unevenly following its strongest gain in three months. The earlier rally in both cryptocurrencies was supported by softer U.S. inflation, technical breakouts, and rising institutional interest.
Meanwhile, Asia-Pacific equities edge higher, led by China and Japan, supported by hopes of more stimulus, strong trade data, and the absence of major geopolitical concerns. Improved sentiment was further helped by the U.S. easing Nvidia chip export rules to China under certain conditions, even as Wall Street closed slightly lower.
Looking ahead, the U.S. Producer Price Index (PPI) and Retail Sales for November will take center stage. If these follow the trend of the U.S. Consumer Price Index (CPI), the U.S. Dollar could weaken further, giving major currency pairs like EURUSD room to rise despite limited domestic positives. Crude oil is likely to stay firm amid ongoing supply challenges, while cryptocurrencies may see some pullback. Meanwhile, gold and silver are expected to hold their gains, supported by broad market uncertainty driven by trade and geopolitical concerns.
May the trading luck be with you!
