Market sentiment saw a boost as several key factors took the spotlight. Donald Trump’s hesitation to push for additional China tariffs, alongside support for lower interest rates and an emphasis on increased infrastructure spending, helped create a positive mood. Weaker-than-expected US Jobless Claims data further reinforced this optimism.
The Bank of Japan’s (BoJ) rate hike added to the market’s risk-on sentiment, contributing to the decline of the US Dollar Index (DXY) for a second consecutive day. However, it’s important to note that a cautious tone ahead of January’s preliminary PMI numbers has helped to limit the Dollar's losses, preventing a sharp decline.
EURUSD climbed to a three-week high on Wednesday, boosted by a weaker US Dollar and cautious optimism in the market. A slight uptick in Eurozone Consumer Confidence for January also helped the Euro pair maintain its strength, despite the lack of significant positive data from the region.
Similarly, GBPUSD surged to a 12-day high, benefiting from the softer US Dollar. The Pound largely ignored the disappointing UK GfK Consumer Confidence data for January, maintaining its upward momentum.
The Bank of Japan (BoJ) met market expectations with a rate hike, raising the benchmark to its highest level in 17 years. This move pressured USDJPY, with additional downside driven by the BoJ’s inflation forecasts and Monetary Policy Statement. The central bank’s outlook suggested two more rate hikes in 2025, adding to the bearish sentiment around the Yen pair. With this, USDJPY dropped toward the weekly low as the US Dollar weakened, market sentiment improved, and Japan’s upbeat inflation data supported the Yen.
The Australian Dollar (AUD), New Zealand Dollar (NZD), and Canadian Dollar (CAD) saw a strong recovery on Friday, driven by a weaker US Dollar and growing optimism around China, the world’s largest commodity consumer and Australia’s key trading partner. Adding to the strength of the Antipodeans was a pause in the decline of Crude Oil prices and a positive PMI report from Australia for January. As a result, AUDUSD and NZDUSD climbed to five-week highs, while USDCAD broke a three-day winning streak.
Despite a slow finish the previous day, Gold prices surged to a fresh high since October 31, driven by a weaker US Dollar and optimism linked to China. Additional support came from news that the People’s Bank of China (PBoC) boosted its gold reserves to the sixth highest in the world in 2024.
Meanwhile, Trump’s push for increased oil supplies, this time directing the OPEC+ cartel, pressured WTI Crude Oil prices. However, a softer US Dollar and positive news surrounding China helped the commodity break its six-day downtrend, posting mild gains, though still at its lowest level in two weeks. It should be observed that a surprise draw in the US EIA weekly crude oil stock also favored the energy benchmark’s corrective bounce.
Bitcoin (BTCUSD) and Ethereum (ETHUSD) posted mild gains, maintaining the recovery from the previous day. The rise follows the US SEC’s decision to revoke a rule preventing banks from acting as custodians of clients’ cryptocurrencies. Increased ETF inflows and hopes for more industry-friendly policies under the Trump administration further supported BTCUSD and ETHUSD buyers, boosted by slightly positive market sentiment and a weaker US Dollar.
Market players will be closely watching the preliminary January PMIs for the UK, Eurozone, and US on Friday, as well as a speech from ECB President Christine Lagarde and mid-tier housing data from the US and Canada. The recent US Dollar pullback is expected to continue, driven by Trump-led optimism and challenges for Fed hawks, unless the US PMIs show unexpectedly strong numbers. This could push USDJPY lower and boost Gold toward its record high near $2,790. Other currencies, commodities, and Antipodeans might see mixed trading based on the data outcomes.
May the trading luck be with you!
