US Dollar bears take a breather despite risk reset

The US Dollar is licking its wound, what looks like another down week, as dovish US Federal Reserve expectations continue to play out. Reuters poll reported that a majority of the economists expect 25 basis points (bps) rate hike in the first quarter of this year, followed by a pause in its tightening cycle. Risk sentiment is in a better spot so far this Friday, with the Asian stocks recovering ground while the US S&P 500 futures add 0.20% on the day. Markets are shrugging off the negative close on Wall Street overnight, with investors adjusting their positions ahead of the Lunar New Year holidays in China. Further, a jump in subscribers of the US streaming giant Netflix added to the market optimism. Netflix ended last year with over 230 million global subscribers, beating market expectations.

The upbeat market mood is weighing on the US government bonds, motivating US Treasury bond yields to attempt a tepid bounce from multi-month troughs. The USD/JPY pair is advancing above 129.00 amid firmer yields and a pause in the US Dollar downtrend, although maintains its Bank of Japan (BoJ) decision range.

Meanwhile, investors assess the latest commentary from Federal Reserve policymakers heading into the Fed’s ‘blackout period’ from Saturday. Fed Vice Chair Lael Brainard said, “Even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2 percent on a sustained basis.” Meanwhile, New York Fed President John Williams said that “The destination, not speed, is the key issue for the rate hike question.”

Friday will see speeches from Philadelphia Fed President and dove Patrick Harker and Governor Christopher Waller, with the policymakers getting the last chance ahead of the February 2 monetary policy announcements.

AUD/USD and NZD/USD are holding onto their recent recovery gains while USD/CAD is trading steady at around 1.3450 amid a minor bounce in the US Dollar and retreating WTI prices. The US oil pares gains amid looming recession risks and an increase in the US EIA crude stockpiles.

EUR/USD is extending its range play above 1.0800, awaiting European Central Bank (ECB) President Christine Lagarde’s speech. On Thursday, Lagarde said that “inflation is way too high” and therefore, the central bank will “stay the course with rate hikes,” squashing market expectations of smaller ECB rate increments.

GBP/USD is on the back foot, having faced rejection at 1.2400 earlier in the Asian session. Investors look forward to the UK Retail Sales data for fresh trading impetus.

Gold price is easing from near nine-month highs of $1,935 amid an uptick in the US Treasury bond yields, All eyes remain on the Fed-speak due later in the day.

Bitcoin is stuck in a narrow range just below the $21,000 level, marginally lower on the day while Ethereum is struggling above the $1,500 barrier amidst news that Crypto lender Genesis files for bankruptcy.

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