Strong capital inflows and positive US data clashed with risk-negative geopolitical news, creating an active start to 2025. However, updates from China and statements from incoming US President Donald Trump sparked some optimism on Friday. As a result, traders are feeling cautiously positive ahead of the final data releases during the holiday-shortened week.
Against this backdrop, the US Dollar Index (DXY) rose to its highest level since November 2022, exerting downside pressure on the major currencies. However, the Antipodeans refrained from dropping further, while Gold and Crude Oil refreshed multi-week highs.
The upbeat US PMI and softer Jobless Claims data boosted the US Dollar on the first trading day of 2025. In contrast, the dovish outlook from the European Central Bank (ECB) and disappointing EU/German PMIs pushed EURUSD to its lowest level since November 2022. Similarly, a weaker UK Manufacturing PMI and British Finance Minister Rachel Reeves' comments on potential Bank of England rate cuts dragged GBPUSD to a fresh low since April 2024. Meanwhile, USDJPY remained only slightly higher amid mixed discussions around the Bank of Japan (BoJ) and Japan's intervention during its four-day holiday.
Increasing expectations of a rate cut by the People's Bank of China (PBoC) in 2025, along with statements from China's National Development and Reform Commission (NDRC) hinting at more stimulus, helped ease growth concerns about China. This, combined with a light economic calendar and market consolidation, prevented further declines in AUDUSD and NZDUSD, which have been hovering near their December lows.
Meanwhile, USDCAD ended its two-day winning streak due to stronger oil prices but lacks downward momentum, suggesting potential further gains for the Loonie pair amid a dovish outlook for the Bank of Canada (BoC).
After its biggest yearly gain since 2010, Gold started 2025 strong, reaching a three-week high. Despite the strength of the US Dollar, the precious metal found support as market uncertainty—fuelled by central bank dilemmas, geopolitical tensions, and trade wars—pushed traders toward this traditional safe-haven asset.
Like Gold, Crude Oil buyers brushed off the US Dollar's gains and kicked off 2025 with a strong start, reaching their highest level since mid-October during a four-day uptrend. The energy market benefited from depleting inventories, rising geopolitical tensions around Iran, and hopes for more stimulus from China. However, concerns over OPEC+'s output policy, a hawkish Fed stance, and doubts about China’s ability to regain global confidence despite heavy stimulus weigh on Crude Oil buyers.
Elsewhere, popular cryptocurrencies rose slightly on the first trading day of 2025 but struggled to maintain momentum early on Friday. China's potential tightening of crypto regulations tests Bitcoin (BTCUSD) and Ethereum (ETHUSD) buyers. However, optimism surrounding potential industry-friendly measures from Donald Trump and support from major global firms keeps the outlook positive for both BTCUSD and ETHUSD.
Looking ahead, the US ISM PMIs for December, along with speeches from mid-tier US Federal Reserve (Fed) and ECB officials, will capture the attention of momentum traders on Friday. However, the festive atmosphere, a light economic calendar, and mixed geopolitical news may limit market movements ahead of the key week with the US employment report.
That said, the US Dollar and Gold are likely to maintain their recent gains unless upcoming events disappoint. This could put pressure on Crude Oil and Antipodean currencies while pushing EURUSD and GBPUSD to new multi-month lows.
May the trading luck be with you!
