After increased volatility around the FOMC, markets face lower liquidity ahead of today’s ECB Interest Rate Decision and Q4 GDP reports from Germany, the Eurozone, and the US. Mixed signals from the Fed and geopolitical concerns add to market uncertainty.
The US Federal Reserve (Fed) held rates steady as expected, but Chairman Powell's mixed signals caused market swings. That said, the Fed Chair’s hawkish comments initially boosted the US Dollar, but later clarifications led to a retreat. However, risk concerns from Trump’s tariff threats and border control plans supported the US Dollar, helping it finish the day with mild gains.
EURUSD faces pressure from fears of a German recession, geopolitical tensions in the EU, and a dovish outlook for the European Central Bank (ECB). Germany’s industrial body raised recession concerns, while consumer confidence dropped more than expected. Trade tensions with the US, issues with Russia, and challenges for major IT firms also weigh the Euro. That said, markets expect weak EU GDP data, another ECB rate cut, and a dovish statement from ECB President Lagarde.
GBPUSD struggles to hold onto previous gains amid concerns over the UK’s economic transition and expectations of more rate cuts from the Bank of England. The pair ended Wednesday with slight gains, despite a stronger US Dollar, thanks to optimistic comments from UK Chancellor Rachel Reeves and BoE Governor Andrew Bailey.
USDJPY saw the biggest move among G10 pairs, dropping over 0.50% intraday, continuing the previous day’s pullback. The decline was driven by market expectations of greater policy divergence between the US Federal Reserve (Fed) and the Bank of Japan (BoJ), especially after Fed Chair Powell’s clarification of a change in FOMC statement’s language weakened the USD. Additionally, news of a meeting between Japan's Prime Minister Shigeru Ishiba and President Trump in Washington also exerted downside pressure on the quote.
AUDUSD and NZDUSD fall for the fourth day in a row, while USDCAD defends its four-day winning streak. China’s absence due to the Lunar New Year, along with trade war fears and dovish central bank outlooks, weigh on both currency pairs. That said, NZDUSD drops amid mixed business confidence and trade data, while AUDUSD struggles due to weak RBA Bulletin and disappointing Aussie inflation figures, compounded by overall market anxiety.
Meanwhile, the Bank of Canada (BoC) cut the benchmark interest rate by 0.25%, as expected, and propelled the USDCAD pair, especially amid the Fed’s hawkish halt. The Loonie pair’s run-up also traced dovish comments of BoC Governor Tiff Macklem, citing trade tariffs as threats to the Canadian Dollar (CAD), and softer prices of crude oil. Meanwhile, news of Canadian Foreign Minister Joly’s “cautiously optimistic” talks with US Secretary of State Rubio added to the market buzz early Thursday.
The US Dollar's mild gains pressured Gold and Crude Oil prices, with oil taking a bigger hit due to rising inventory levels and concerns over higher supply and lower demand. Meanwhile, fears in the market and increased demand kept Gold prices relatively strong, ahead of today’s US GDP data and Friday’s Fed inflation report.
Bitcoin (BTCUSD) and Ethereum (ETHUSD) are on the rise after bouncing back from their weekly lows. The boost comes from hopes for more crypto-friendly actions from the Trump administration and news from the CME. Additionally, growing doubts about the Fed's hawkish stance and cautious market optimism support the recent gains in both cryptocurrency pairs.
Thursday will be an active day with key Q4 2024 GDP reports from Germany, the Eurozone, and the US. The European Central Bank (ECB) is expected to cut rates by 25 basis points (bps), which, along with cautious comments from ECB President Christine Lagarde, may pressure EURUSD. Weaker growth in the Eurozone and strong US data could further support the US Dollar and weigh on the Euro. However, if the US data disappoints, other currencies and commodities might rebound, while Gold could benefit as a haven irrespective of the outcomes.
May the trading luck be with you!
