The risk appetite hit early Monday as multiple factors weighed on investor optimism. Donald Trump’s trade war with Colombia, disappointing economic data from China, and growing doubts over the Russia-Ukraine peace talks added to global uncertainty. On top of this, a cautious mood is building ahead of major central bank decisions this week, including from the Federal Reserve (Fed), European Central Bank (ECB), and Bank of Canada (BoC). Key data releases from the US, Australia, and the Eurozone also keep investors on edge, reinforcing a risk-off sentiment.
That said, Friday’s weak US S&P Composite and Services PMIs for January hit the US Dollar Index (DXY), leading to its biggest weekly loss since November 2023, just ahead of this week’s FOMC meeting and Fed inflation data. The dollar’s decline allowed major currencies and Antipodean currencies to recover some losses, while commodities showed mixed results. Gold reached its all-time high but pulled back from $2,784, while Crude Oil saw its largest weekly drop in seven weeks. Equities edged lower, but cryptocurrencies ended the week higher before pulling back on mixed signals.
EURUSD posted its biggest weekly gain since July 2023, despite mixed data from Germany and the Eurozone, along with ongoing geopolitical and trade war concerns. The pair positioned itself ahead of the Fed’s likely hawkish stance and the ECB's potential rate cut. However, early Monday saw the Euro retreat from a six-week high as the US Dollar rebounded amid a broader risk-off sentiment.
Meanwhile, USDJPY reversed weekly losses and recorded its first daily gain in three days. The Yen pair is preparing for the FOMC’s upcoming decision, with the US Dollar remaining in demand as a haven, especially due to the lack of major updates from Japan.
GBPUSD saw its biggest weekly gain since November 2022, fueled by Friday’s strong UK PMIs, news that UK Chancellor Rachel Reeves may use pension surpluses to drive investment, and a weaker US Dollar. The Pound also shrugged off surveys indicating UK businesses plan to reduce pay increases due to upcoming payroll tax hikes. However, early Monday saw the pair retreat as the US Dollar rebounded broadly, growing concerns over the UK’s economic transition and a dovish outlook for the Bank of England (BoE) ahead of next week’s policy announcements.
The Australian, New Zealand and Canadian Dollars trimmed their weekly gains, hurt by disappointing data from their largest trading partner, China. The risk-off sentiment supporting the US Dollar and weak Crude Oil prices also weighed on the AUD, NZD, and CAD, along with holidays in Australia. Notably, USDCAD posted a weekly loss despite the drop in Crude Oil prices, driven by a broadly weaker US Dollar and expectations that the Bank of Canada (BoC) may pause its dovish rate moves this week.
After the biggest jump in five weeks, Gold paused its climb toward a record high, retreating from $2,784. The precious metal had benefitted from a weaker US Dollar and increased buying from China, but today’s pullback came amid a broader risk-off sentiment and disappointing PMI and industrial production data from Beijing.
Meanwhile, Crude Oil prices continued to drop, pressured by Trump’s push for OPEC to increase supply, his "drill baby drill" stance, and ongoing concerns about China’s economy, all adding to the risk-off mood.
Bitcoin (BTCUSD) and Ethereum (ETHUSD) trimmed their weekly gains amid renewed doubts about Donald Trump’s commitment to groundbreaking industry incentives. The cryptocurrencies also largely ignored a rise in investor holdings, as they were weighed down by overall sour market sentiment.
The market starts the week on a quieter note, with sentiment weighed down by news from China and Trump, along with pre-data uncertainty. With a holiday in Australia and a light calendar elsewhere, traders can expect less volatility on Monday. However, Germany's IFO sentiment data, US Chicago PMI, and New Home Sales will likely stir some movement, along with ongoing Trump news and sentiment building ahead of key events later in the week.
The cautious mood and consolidation ahead of the FOMC meeting, US Core PCE Price Index, and Durable Goods Orders may help the US Dollar maintain its recent rebound, potentially dragging other major currencies and Antipodeans lower. Commodities could trade mixed, with Gold benefiting from its haven status while escalating geopolitical tensions may continue to test Oil supplies. Meanwhile, GBP/USD could face further losses due to a lack of major UK catalysts and growing concerns over the Fed vs BoE policy divergence.
May the trading luck be with you!
