Market sentiment remains negative early Friday as Asian traders react to US President Donald Trump’s tariff announcements, which suggest an additional 10% burden for China and confirm planned tariffs on Canada and Mexico in March. Market fears persist despite attempts to ease the pessimism with news of China stimulus, a US government funding bill, and progress on the Ukraine-Russia peace deal. The risk aversion, combined with strong US Durable Goods Orders and Personal Consumption and Expenditure (PCE) data, led the US Dollar Index (DXY) to a three-day winning streak, even as the latest Fed statements lacked a hawkish tone.
The strength of the US Dollar is weighing on major currencies, Antipodeans, and Gold prices, while Crude Oil reverses the previous day’s gains. Meanwhile, USDJPY lacks upward momentum despite softer Tokyo inflation data, and cryptocurrencies are set for their biggest weekly loss in over a year. Equities are also drifting lower, lacking direction ahead of today’s US Core PCE Price Index for January, the Fed’s preferred inflation gauge.
The US Dollar’s strength, combined with concerns over a potential EU-US trade war, weak Eurozone data, and a dovish European Central Bank (ECB) outlook, has led to a third consecutive day of declines for the EURUSD pair, signaling a possible two-week downtrend. The euro also faces pressure from fears of a German recession and the prolonged Ukraine-Russia war.
Meanwhile, GBPUSD extends the previous day’s losses despite the UK’s business sentiment gauge from Lloyds Bank snapping a seven-month losing streak, rising to 49% for January.
USDJPY struggles to hold onto weekly gains despite softer Tokyo inflation figures. The yen’s hesitation to rise may be tied to comments from Bank of Japan Deputy Governor Uchida, who emphasized no change in policy stance despite recent yield fluctuations and noted Japan’s moderate economic recovery. However, BoJ Governor Ueda’s remarks about monitoring US monetary policy before confirming rate hikes may have provided some support for the yen.
AUDUSD saw the largest decline among key currency pairs following China tariff news, reflecting the strong trade ties between Australia and China. As a result, the Aussie pair dropped for the sixth consecutive day, alongside softer Australia Private Sector Credit data for January.
Meanwhile, the NZDUSD also extended its six-day losing streak, driven by a dovish outlook from the Reserve Bank of New Zealand (RBNZ), concerns over China, and a stronger US Dollar.
On the other hand, USDCAD struggled to maintain its five-day uptrend as Thursday's rise in oil prices, along with a cautious market mood ahead of today’s Canada GDP and US Core PCE Price Index, challenge the pair buyers.
The stronger US Dollar, combined with China-related trade concerns and month-end consolidation, pushed Gold prices to a three-week low. As a result, the bullion is set for its first weekly loss in nine weeks. However, mixed views on global central bank policies, ongoing trade and geopolitical uncertainty, and bond market movements have challenged the Gold bears.
Concerns surrounding a delay in the OPEC+ output increase joined China stimulus news and the US-Iran jitters to underpin the WTI Crude Oil’s rebound the previous day. However, the risk-off mood and firmer US Dollar weigh on the energy benchmark early Friday.
Cryptocurrencies witness heavy selling pressure without any major catalysts, apart from the broad market pessimism and bybyte hacking news. With this, Bitcoin (BTCUSD) braces for the biggest weekly loss since early December 2023 while Ethereum (ETHUSD) eyes the heaviest slump since May 2021.
After a volatile Thursday marked by US data and Trump’s statements, traders can expect an active Friday with key releases, including German inflation, Canada's GDP, and the US Federal Reserve’s preferred inflation data. Trump’s meeting with the Senate and his push for tariffs may also add to market volatility.
Given the current risk-off sentiment and stronger US data, any improvement in the US Core PCE Price Index could overshadow the recent dovish Fed rhetoric and push the US Dollar higher to close the week positively. This would weigh on major currencies, commodities, and cryptocurrencies.
Gold is no exception and could see further downside, as a technical breakdown, month-end consolidation, and a firmer US Dollar add pressure. The XAUUSD is approaching $2,850 support, and a break below this level could drag gold toward the $2,790 support.
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