US Dollar keeps its footing ahead of mid-tier data releases

Following Tuesday’s volatile action, markets remain risk-averse early Wednesday and the US Dollar (USD) preserves its strength against its major rivals. January Retail Sales and Industrial Production data will be featured in the US economic docket alongside the NY Fed’s Empire State Manufacturing Survey and December Business Inventories. European Central Bank President Christine Lagarde will be speaking later in the day.

The data published by the US Bureau of Labor Statistics revealed on Tuesday that the Consumer Price Index (CPI) rose 0.5% on a monthly basis in January, marking its biggest one-month increase since June. The Core CPI, which excludes volatile food and energy prices, increased 0.4% in the same period. Although the initial market reaction to the data was mixed in the early American session, the benchmark 10-year US Treasury bond yield climbed above 3.7% and helped the USD regain its traction. Following the inflation figures, the CME Group FedWatch Tool shows markets are pricing in a more than 80% probability that the Fed will opt for one more rate hike of at least 25 basis points in May.

Reflecting the souring market mood, US stock index futures were down between 0.4% and 0.7% in the early European morning on Wednesday.

The UK’s Office for National Statistics announced on Wednesday that the annual CPI declined to 10.1% in January from 10.5% in December, compared to the market expectation of 10.3%. Similarly, the Core CPI fell to 5.8% on a yearly basis from 6.3% in December. Pressured by the soft inflation, GBP/USD trades deep in negative territory near 1.2100 in the early European session.

During the Asian trading hours, Reserve Bank of Australia (RBA) Governor Philip Lowe said that inflation was still too high and added that there is a risk that the RBA hasn’t done enough with rates. Despite these hawkish comments, AUD/USD stayed under heavy bearish pressure and was last seen losing nearly 1% on a daily basis slightly above 0.6900.

Boosted by rising US Treasury bond yields, USD/JPY climbed to its highest level in nearly five weeks and was last seen trading modestly higher on the day above 133.00. Japan’s Prime Minister Kishida said earlier in the day that he expects the new Bank of Japan (BoJ) governor to keep appropriate monetary policy, taking into account of economy, inflation and market situations.

After having climbed above 1.0800 in the early American session on Tuesday, EUR/USD erased its gains to end the day flat below 1.0750. The pair stays on the back foot early Wednesday and retreats toward 1.0700.

Gold price extended its slide with the 10-year US T-bond yield holding comfortably above 3.7% during the Asian trading hours on Wednesday. XAU/USD was last seen trading at its lowest level since early January below $1,850.

Bitcoin gained nearly 2% on Tuesday and seems to have gone into a consolidation phase slightly above $22,000 on Wednesday. Ethereum rose more than 3% on Tuesday and reclaimed $1,500 after having declined in the previous two days. Early Wednesday, ETH/USD is moving sideways in a narrow range at around $1,550.

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