Forex: US dollar dips as markets await PPI data and Fed insights
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Tuesday’s trading session opened with a notable shift in sentiment, as markets reacted to mixed signals from global economies. Asian indices reflected uncertainty with Japan’s markets reopening to losses, while Chinese equities surged following optimism over potential economic support from Beijing.
Risk-on sentiment weighs on the dollar
The US Dollar faced downward pressure in early European trading, spurred by a risk-on mood. Reports that US President-elect Donald Trump’s economic advisors are planning gradual tariff hikes to manage inflation sparked optimism, weakening the safe-haven appeal of the Greenback. This marked a continuation of the Dollar’s losses from Monday, where Bloomberg revealed incremental tariff strategies ranging from 2% to 5% increases.
Profit-taking on long USD positions also contributed to the decline, as traders braced for critical economic data, including the US Producer Price Index (PPI) and speeches from Federal Reserve officials. These events are expected to shape expectations around the central bank’s monetary policy, with traders pricing in a 29-basis-point rate cut this year, a notable reduction from the Fed’s December forecast of 50 bps
Key currency movements highlight divergence
Across the forex market, major currency pairs experienced varied dynamics. The USD/JPY pair traded lower near 157.50, impacted by comments from Bank of Japan Deputy Governor Ryozo Himino hinting at potential rate hikes due to sustained wage growth prospects.
The EUR/USD pair found stability above 1.0250, recovering from Monday’s 26-month lows, as retreating US Treasury yields offset dovish tones from the European Central Bank. Similarly, GBP/USD rebounded above 1.2200, recovering from a 15-month low of 1.2100, despite ongoing concerns over the UK’s fiscal health.
The AUD/USD hovered around 0.6200, buoyed by Chinese stimulus hopes, although broader US-Sino trade tensions capped gains. Meanwhile, NZD/USD outperformed, as the New Zealand Dollar emerged as the strongest against the Greenback, supported by improved risk sentiment.
Treasury yields and commodities in focus
The benchmark US 10-year Treasury yield corrected from its highest level since November 2023, adding further pressure on the Dollar. Gold prices attempted to reclaim $2,700, supported by a symmetrical triangle breakout on the daily chart, reflecting renewed bullish momentum amid retreating yields.
Oil markets also saw some consolidation, with WTI crude trading near $77, down 0.50% on the day. The dip followed a three-month high, as market participants weighed supply-demand dynamics against macroeconomic uncertainty.
Looking ahead
The US PPI release later today and tomorrow’s Consumer Price Index (CPI) are anticipated to provide crucial insights into inflation trends, shaping the Federal Reserve’s policy outlook. Additionally, speeches from Fed officials, including John Williams and Jeffrey Schmid, will be closely scrutinized for clues on the pace of future rate adjustments.
With the US Dollar under pressure and global markets navigating a delicate balance between optimism and caution, the coming sessions are poised to offer pivotal guidance for traders across asset classes.
Risk-on sentiment weighs on the dollar
The US Dollar faced downward pressure in early European trading, spurred by a risk-on mood. Reports that US President-elect Donald Trump’s economic advisors are planning gradual tariff hikes to manage inflation sparked optimism, weakening the safe-haven appeal of the Greenback. This marked a continuation of the Dollar’s losses from Monday, where Bloomberg revealed incremental tariff strategies ranging from 2% to 5% increases.
Profit-taking on long USD positions also contributed to the decline, as traders braced for critical economic data, including the US Producer Price Index (PPI) and speeches from Federal Reserve officials. These events are expected to shape expectations around the central bank’s monetary policy, with traders pricing in a 29-basis-point rate cut this year, a notable reduction from the Fed’s December forecast of 50 bps
Key currency movements highlight divergence
Across the forex market, major currency pairs experienced varied dynamics. The USD/JPY pair traded lower near 157.50, impacted by comments from Bank of Japan Deputy Governor Ryozo Himino hinting at potential rate hikes due to sustained wage growth prospects.
The EUR/USD pair found stability above 1.0250, recovering from Monday’s 26-month lows, as retreating US Treasury yields offset dovish tones from the European Central Bank. Similarly, GBP/USD rebounded above 1.2200, recovering from a 15-month low of 1.2100, despite ongoing concerns over the UK’s fiscal health.
The AUD/USD hovered around 0.6200, buoyed by Chinese stimulus hopes, although broader US-Sino trade tensions capped gains. Meanwhile, NZD/USD outperformed, as the New Zealand Dollar emerged as the strongest against the Greenback, supported by improved risk sentiment.
Treasury yields and commodities in focus
The benchmark US 10-year Treasury yield corrected from its highest level since November 2023, adding further pressure on the Dollar. Gold prices attempted to reclaim $2,700, supported by a symmetrical triangle breakout on the daily chart, reflecting renewed bullish momentum amid retreating yields.
Oil markets also saw some consolidation, with WTI crude trading near $77, down 0.50% on the day. The dip followed a three-month high, as market participants weighed supply-demand dynamics against macroeconomic uncertainty.
Looking ahead
The US PPI release later today and tomorrow’s Consumer Price Index (CPI) are anticipated to provide crucial insights into inflation trends, shaping the Federal Reserve’s policy outlook. Additionally, speeches from Fed officials, including John Williams and Jeffrey Schmid, will be closely scrutinized for clues on the pace of future rate adjustments.
With the US Dollar under pressure and global markets navigating a delicate balance between optimism and caution, the coming sessions are poised to offer pivotal guidance for traders across asset classes.