Financial markets remain dicey early Friday, mostly favoring the US Dollar, as traders await the Federal Reserve’s (Fed) favorite inflation gauge, namely the Core PCE Price Index. Adding strength to the cautious mood are the mixed headlines about geopolitical and economic concerns about China and the Middle East.
That said, the US Dollar Index (DXY) braces for a four-week uptrend while posting mild intraday gains near 103.55 by the press time. However, the upbeat closing of Wall Street and a pullback in the Treasury bond yields fail to provide clear directions to riskier assets like equities and commodities.
While the US Dollar stays firmer, the EURUSD bears the burden of the European Central Bank’s (ECB) dovish halt while GBPUSD remains lackluster amid mostly upbeat UK data and mixed bias about the Bank of England’s (BoE) next move. Further, USDJPY edges higher on the downbeat Japan inflation data and the Bank of Japan’s (BoJ) dovish clues whereas AUDUSD and NZDUSD stay pressured amid a slightly offbeat market mood and concerns that China stimulus won’t be enough to defend the Antipodeans.
Elsewhere, BTCUSD fades bounce off the weekly low while the ETHUSD prints a seven-day losing streak as optimism surrounding the crypto market recedes.
Following are the latest moves of the key assets:
On Thursday, a better-than-forecast US Gross Domestic Product (GDP) for the fourth quarter (Q4) of 2023 allowed the US Dollar Index (DXY) to reach a weekly high. Also likely to have helped the Greenback were comments from US Treasury Secretary Janet Yellen as she said, “Strong US Q4 GDP performance is 'a good thing,'” while also adding that the same is not likely creating an inflationary challenge.
It’s worth noting, however, that the softer details of the US Durable Goods Orders and Personal Consumption Expenditures (PCE) for December, as well as disappointing activity data from Kansas and Chicago Feds triggered a pullback move in the US Treasury bond yields and the US Dollar.
On a different page, China’s Foreign Minister Wang Yi and US National Security Adviser Jake Sullivan will meet in Bangkok to discuss the Houthi attacks on Red Sea shipping, especially when Beijing has influence over Tehran and can help the US placate tensions in the key shipping route. Also, Russian President Vladimir Putin was quoted signaling readiness to talks on Ukraine, which in turn allowed the risk appetite to improve and weigh on the US Dollar, as well as put a floor under the Gold Price.
Moving on, the European Central Bank (ECB) left the benchmark interest rates unchanged, as expected, but comments from ECB President Christine Lagarde drowned the Euro (EUR). That said, ECB’s Lagarde initially cited the downside risks to the economic data while pushing back the discussions on the rate cuts. Even so, Reuters cited anonymous ECB sources to mention that policymakers are open to discussing cuts in March if inflation data improves.
Softer prints of the Tokyo Consumer Price Index (CPI) for January joined the not-so-hawkish Bank of Japan (BoJ) monetary policy meeting minutes to weigh on the Japanese Yen (JPY). However, downbeat yields and the US Dollar’s retreat test the USDJPY buyers ahead of the key data dose. In doing so, the Yen pair justifies comments from Japanese Finance Minister Suzuki who said that the government and the BoJ are working closely together based on the need to achieve the 2% inflation target stably and sustainably.
Moving on, the US Core PCE Price Index data for December, also known as the Fed’s preferred inflation gauge, will be crucial for the near-term directions of the market as it will be the last key data ahead of next week’s Fed monetary policy meeting.
If the inflation gauge matches the upbeat expectations, or surpasses them, the US Dollar will quickly jump to a fresh multi-day high and exert downside pressure on the riskier assets like major currencies and Antipodeans, as well as the commodities. Alternatively, a major disappointment from the data becomes necessary for the US Dollar bears to retake control.
May the trading luck be with you!