GBPUSD fails to cheer US Dollar’s retreat, hawkish BoE talks

Traders’ anxiety swirls up ahead of this week’s top-tier data, namely the US Personal Consumption Expenditure (PCE) Price Index figures for January, also known as the Federal Reserve’s (Fed) preferred inflation gauge. The data becomes all the more important as most of the Fed officials have pushed back concerns about the rate cuts but the recent US GDP and Durable Goods Orders, as well as the CPI numbers, have been less supportive of the speculations.

Apart from that, a strong rebound in Chinese equities, after the previous slump, allowed the Asia-Pacific shares to edge higher despite the downbeat closing of the Wall Street benchmarks. That said, US policymakers’ ability to avoid the government shutdown failed to impress the risk-takers amid mixed data and hawkish comments from the major central bankers including the Fed, European Central Bank (ECB) and the Bank of England (BoE).

With this, the US Dollar Index (DXY) prints the first daily loss in three despite lacking momentum while the riskier assets pick up bids. Among them, the AUDUSD and Gold are the front runners whereas USDJPY drops the most among hawkish signals from the Bank of Japan (BoJ) official. Moving on, Crude Oil remains depressed and GBPUSD appears indecisive but the EURUSD prints a three-day losing streak.

On the other hand, BTCUSD and ETHUSD continue to extend their northward trajectory and rose to the highest levels since November 2021 and March 2022 respectively amid the traders’ increased confidence in the cryptocurrencies.

Following are the latest moves of the key assets:

• Brent oil remains indecisive around $82.70 after reversing from weekly high the previous day.
• Gold price picks up bids to $2,038 while extending Wednesday’s rebound.
• USD Index snaps two-day winning streak with mild losses around 103.90.
• Wall Street closed with minor losses but Asia-Pacific stocks edged higher. Further, the shares in Europe and the UK stay on the front foot during the initial hour.
• BTCUSD and ETHUSD both seesaw near the multi-month high to around $62,600 and $3,470.

Cautious mood prevails but USDJPY slumps…

Although the US Congressional Leaders reached a deal to avoid the March 2 partial government shutdown and offered a sigh of relief to the market, the US Dollar lacks upside momentum. The reason could be linked to the softer prints of the US Q4 GDP, per the second estimate, as well as the wider trade deficit.

It should be noted, however, that the hawkish Fed commentary put a floor under the US Dollar. That said, Federal Reserve Bank of Boston President Susan Collins and New York Fed President John Williams repeated their support for the monetary policy easing to begin in late 2024. Atlanta Fed President Raphael Bostic also defended the Fed’s restrictive policies while saying that there is still work to do on inflation.

On the other hand, European Central Bank (ECB) Governing Council member Martins Kazaks pushed back concerns about rate cuts while saying it is “too soon” to cut rates. On the same line, ECB policymaker and Bundesbank Chief Joachim Nagel also said, “It would be fatal if ECB cut rates too early only for inflation to rebound.”

Bank of England (BoE) policymaker Catherine Mann said to the Financial Times (FT) that the BOE is struggling to bring inflation back to target because price rises are increasingly driven by people who are immune to the pressures of higher interest rates. Even so, the GBPUSD pair fails to recover as traders doubt hopes of the UK’s economic recovery.

Crude oil posted the first daily loss in three, before the latest rebound, as firmer US Dollar joined the EIA’s weekly crude oil inventories that rose more than expected and prior release. Also challenging the black gold prices were comments from Russia's Deputy Prime Minister Alexander Novak who said that they see a balance of supply and demand on the global oil market.

Above all, USDJPY dropped the most among the G10 currency pairs as BOJ board member Takata offered the clearest signals of the exit from the current ultra-easy monetary policy. In doing so, the Yen pair ignores sluggish yields and downbeat Japan Industrial Production numbers while also benefiting from the US Dollar’s retreat.

• Strong buy: USDCAD, USDJPY
• Strong sell: Crude Oil, US Dollar, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold
• Sell: DAX, FTSE 100, BTCUSD, AUDUSD, EURUSD

Fed inflation is the key…

Although inflation data from Germany, Canadian GDP and US Chicago PMI are also up for publishing, the market’s major attention will be on the US Core PCE Price Index details. That said, the recent softening in the US GDP and CPI data raised doubts about the Fed’s ability to defend the “higher for longer” rate bias. Hence, downbeat prints of the Fed’s preferred inflation gauge will not only weigh on the US Dollar but also allow the commodity prices, mainly Gold, to challenge the key upside hurdles.

May the trading luck be with you!