Market sentiment remains positive as South Korea avoids martial law, US job data improves, and central banks are expected to continue to lower rates despite the latest jitters from the US and Japan. Meanwhile, concerns over China's response to Trump's trade war threats, French political turmoil, and South Korean martial law added uncertainty, challenging recent market optimism.
Amid these plays, the US Dollar Index (DXY) rises, recovering from previous losses, while AUDUSD drops sharply due to weak Australian GDP and trade war fears with China. Meanwhile, gold, crude oil, and most major currencies (except the Antipodeans) are slightly up, and cryptocurrencies are edging higher.
The US Dollar remained on the back foot on Tuesday, despite better-than-forecast JOLTS Job Openings, as bets on the US Federal Reserve’s (Fed) December rate cut increased even as policymakers hesitate to confirm lower rates in their recent speeches. The Greenback’s retreat superseded dovish signals from the European Central Bank (ECB) officials and political jitters in France, where the PM may have no confidence vote, to underpin the EURUSD pair’s rebound. It should be noted that the major currency pair remains on the front foot despite early Wednesday’s firmer US Dollar as traders await speeches from leaders of the ECB, Fed, and Bank of England (BoE).
GBPUSD recover recent losses despite UK economic concerns and the BoE’s likely dovish stance. The pair gained following the British Office for National Statistics (ONS) revision of the employment rate up, while keeping the unemployment rate unchanged. Further, USDJPY sees mild gains, the first in four days, despite stronger Japan PMIs and a higher Nikkei 225.
AUDUSD drew significant attention by falling to a four-month low, posting the biggest daily loss among major currencies. The Aussie pair ignored cautious market optimism and news of China’s stimulus, as Australia’s Q3 GDP growth slowed and Treasurer Chalmers described it as positive but weak. This fuelled expectations for further Reserve Bank of Australia rate cuts, alongside rising tensions in the China-US trade war, adding more pressure on the risk-sensitive pair.
While AUDUSD fell, NZDUSD followed suit despite upbeat comments from RBNZ Governor Adrian Orr, mainly due to concerns over China. Meanwhile, USDCAD ended a two-day winning streak as crude oil prices recovered and ahead of Canada’s upcoming employment data.
The US Dollar's retreat on Tuesday and brief bounce on Wednesday couldn't stop Gold buyers, as traders sought safety amid mixed markets and caution ahead of key central bank speeches. Crude Oil also ignored an unexpected API inventory build, driven by hopes that OPEC+ will delay an output increase decision on Thursday.
Bitcoin (BTCUSD) and Ethereum (ETHUSD) recover previous losses as crypto whales remain optimistic ahead of a potential Trump presidency, while concerns over South Korea's martial law ease.
Looking ahead, market volatility is set to rise with speeches from Fed, ECB, and BoE leaders. Key data to watch includes the US ADP Employment Change, ISM Services PMI, and Factory Orders.
Given recent uncertainties around the Fed's rate plans, hawkish comments from Fed Chair Jerome Powell could boost the US Dollar, especially if the data comes in strong. This may put pressure on major currencies, Antipodeans, and commodities. However, Gold is likely to stay stable or see limited drops, as traders stay cautious ahead of Friday's US NFP, amid ongoing geopolitical and trade war concerns.
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