US President Donald Trump’s threat to impose 100% tariffs on BRICS nations if they create or support a new currency to replace the US Dollar, along with trade warnings to China, Canada, and Mexico, sent waves through the markets. Despite this, the absence of actual tariff announcements, combined with weaker-than-expected US GDP growth and muted inflation signals, allowed traders to stay cautiously optimistic as they awaited today’s US Core PCE Price Index, the Fed’s preferred inflation measure.
Meanwhile, rising tensions from Russian bombers entering Japan’s air defense zone and Japan scrambling fighter jets kept risk sentiment on edge. Despite these geopolitical and tariff concerns, the US Dollar remained strong, helped by the European Central Bank’s rate cut. Still, the Greenback now faces a key test ahead of the Fed's inflation data.
The European Central Bank’s (ECB) rate cut, along with President Christine Lagarde’s signals for more such measures, kept EURUSD under pressure for the fifth day in a row, despite a mixed US Dollar. This move reflects weak growth figures from the Eurozone and Germany, its economic engine.
In the UK, pessimism from the Lloyds Bank Business Barometer tested GBPUSD’s recovery, pushing the pair toward weekly losses amid concerns over Britain’s economic struggles and a dovish Bank of England.
Meanwhile, USDJPY faces a three-week downtrend, despite a slight recovery today from its lowest point in 1.5 months. However, mixed Japanese data, including retail sales, industrial production, and unemployment rates, tests JPY buyers. Comments from Japanese PM Ishiba suggesting more US investments also added fuel to USDJPY’s movement. On top of that, increasing hawkish expectations from the Bank of Japan (BoJ) and the JPY’s safe-haven status weigh on the pair.
Even if Chinese traders are off celebrating Lunar New Year, the commodity-linked currencies are down as looming tariff threats from the US join geopolitical tensions and fears surrounding their biggest customers’ economic transition. Apart from the broadly downbeat catalysts, softer Aussie PPI, dovish bias about the Reserve Bank of New Zealand and Bank of Canada (BoC), as well as weaker crude oil prices, also exert downside pressure on the Australian (AUD), New Zealand (NZD) and Canadian Dollars (CAD).
Trump’s tariff threats, mixed US data, geopolitical tensions, and rising demand from China and India have driven gold to its all-time high of $2,800 by early Friday. Further, the metal broke through the $2,785-90 resistance and stays within a five-week bullish channel, ranging from $2,825 to $2,759, strengthening the bullish trend. Additionally, the bullion’s safe-haven appeal and cautious sentiment ahead of key data further boost its upward momentum as traders await the outcomes.
Crude oil remains largely sidelined near its monthly low, managing to pare some weekly losses with mild daily gains. The commodity is weighed down by a broader market risk-off sentiment, US President Trump’s push for increased energy supplies, and concerns over a potential slowdown in demand from China. These factors continue to keep oil prices under pressure, despite small recoveries in recent sessions.
Elsewhere, ECB President Lagarde’s rejection of adding Bitcoin to the monetary reserves of any EU country has tested Bitcoin (BTCUSD) and Ethereum (ETHUSD) buyers recently. However, optimism driven by Trump-led industry developments and growing interest in Bitcoin and Ethereum ETFs has helped these riskier assets maintain firmness on a weekly basis.
With mixed signals around US inflation and the Fed struggling to convince hawks, market players are keenly watching December’s US Core PCE Price Index for clearer direction. Forecasts suggest a slight monthly increase of 0.2%, while yearly figures are expected to hold at 2.8%. If the results soften, they could challenge the Fed’s hawkish stance, potentially weighing on the US Dollar and giving Gold buyers an advantage. Early signals have been downbeat, so any unexpected movement, whether a +0.2% or -0.1% change, could spark significant volatility before the market settles on the US Dollar’s pullback and Gold’s upside.
In addition to US data, German Retail Sales, inflation figures, and Canada’s monthly GDP will capture the attention of momentum traders. However, these statistics are unlikely to shift the current weakness in the Euro (EUR) and Canadian Dollar (CAD), given the dovish bias of the ECB and BoC, as well as ongoing geopolitical tensions surrounding the Eurozone and Canada, and softer crude oil prices.
May the trading luck be with you!
