Risk sentiment is shaky on Wednesday as traders prepare for major events, including monetary policy announcements from the Federal Reserve (Fed) and the Bank of Canada (BoC). Adding to the uncertainty are ongoing tariff threats from the Trump administration and geopolitical tensions. The US Dollar Index (DXY) reverses the previous day’s gains as weak US Durable Goods Orders and Consumer Confidence raise concerns about the Fed’s ability to stay hawkish while likely keeping the rates unchanged.
On Tuesday, the White House reaffirmed the February 1 tariff deadline for Canada and Mexico, and President Trump’s threats—along with plans to rename the Gulf of Mexico—are adding to market unease. Meanwhile, economic and political troubles in Europe, Canada, and the UK weigh on the Euro, Canadian Dollar (CAD), and British Pound (GBP), even as the US Dollar softens.
In commodity markets, Gold benefits as a safe-haven asset, while Crude Oil slips after yesterday’s recovery. Cryptocurrencies are seeing a slight uptick, supported by positive momentum in equities and softer USD.
Germany’s industrial group BDI warned of a deep economic crisis, adding to geopolitical tensions and the European Central Bank's failure to ease market concerns, which is weighing on EURUSD ahead of the Fed’s policy update.
In the UK, worries about the economic transition and caution ahead of Bank of England Governor Andrew Bailey’s speech are putting pressure on GBPUSD buyers.
Meanwhile, the US Dollar’s pullback overshadows weaker Japan Consumer Confidence and a cautious tone from the Bank of Japan’s policy minutes, causing USDJPY to reverse its Tuesday rebound.
Australia’s mixed inflation data and downbeat comments from Treasurer Jim Chalmers are weighing on AUDUSD for a third straight day, despite a pullback in the US Dollar Index (DXY).
NZDUSD is also struggling to gain from the USD’s retreat, with the Kiwi facing a three-day losing streak. Market caution ahead of key events, along with comments from RBNZ Chief Economist Conway hinting at possible rate cuts, is contributing to the weakness in the pair.
USDCAD dropped sharply last week, marking its biggest loss in five months, but is edging higher ahead of today’s Bank of Canada (BoC) rate decision. The Canadian Dollar (CAD) remains under pressure, despite reports of a potential covid-style stimulus if the US imposes tariffs. Weak Crude Oil prices and the Fed’s hawkish stance versus the BoC’s possible rate cuts are also weighing on the Loonie. However, pre-event uncertainty tests the USDCAD’s two-day winning streak on Wednesday.
Gold prices edge higher after reversing earlier losses the previous day, supported by cautious markets and a weaker US Dollar. The metal’s strength also tracks bullish technical signals, China’s stockpiling, and expectations for lower rates from major central banks in 2025. Further, doubts about the Fed's ability to maintain a hawkish stance are helping XAUUSD stay strong.
Crude Oil is slipping after yesterday’s bounce from a four-week low. The price had briefly risen on Tuesday due to a smaller-than-expected inventory build reported by the API. However, negative sentiment and Trump’s push for more energy output are pressuring prices, especially ahead of today’s official stockpile data and the FOMC decision.
Bitcoin (BTCUSD) and Ethereum (ETHUSD) sellers pause at weekly lows, driven by hopes for Fed optimism and Trump’s push for industry-friendly measures. However, their recoveries lack momentum due to the overall cautious market sentiment.
Wednesday is set to be a busy day with key central bank decisions, including the Fed and BoC announcements, and BoE Governor Bailey’s speech. The Fed’s likely hawkish pause could boost the US Dollar, compounded by Trump’s risk-off mood. However, weaker US data might limit the Dollar’s gains.
EURUSD could struggle to recover, while GBPUSD may face selling pressure if Bailey highlights the UK’s economic and political jitters. Further, USDJPY could stay under pressure, and AUDUSD and NZDUSD may find it hard to rebound.
The BoC is expected to cut rates, with focus on any signals for further cuts, which could weigh on the CAD, especially alongside softer Crude Oil prices, pushing the USDCAD higher.
Gold may hold its ground as a haven, while cryptocurrencies need strong catalysts to avoid weekly losses. Equities could remain under pressure due to Trump’s rhetoric and the Fed’s potential hawkish stance.
May the trading luck be with you!
