Monday saw volatility as the US Dollar surged due to news of Trump's tariffs on Canada, Mexico, and China. The mood improved when the Trump administration delayed tariffs on Canada and Mexico, and China showed restraint, easing fears of an all-out trade war. Despite the reversal in risk sentiment, strong US economic data and hawkish Fed signals supported the Dollar on Tuesday.
The EURUSD faced pressure from the ECB's dovish stance, while GBPUSD struggled amid uncertainty over the UK's economic outlook. USDJPY saw a boost as BoJ's comments softened its hawkish stance. The Australian and New Zealand dollars remained weak, influenced by trade war fears, whereas USDCAD jumps back on softer Crude Oil and dovish bias about the Bank of Canada (BoC).
Gold continued to attract haven buyers, while crude oil dropped to a one-month low. Despite Trump’s optimistic tone on crypto trade, Bitcoin & Ethereum saw selling pressure as investors awaited better entry points.
Despite the US Dollar reversing its gains on Monday, mixed EU data and ECB officials hinting at more rate cuts continue to weigh on the EURUSD, pushing it to a three-week low, down for the seventh day in a row.
GBPUSD briefly ended a two-day losing streak thanks to stronger-than-expected UK PMIs and a weaker Dollar. However, renewed concerns over the UK economy, along with expectations of more rate cuts from the Bank of England, put fresh selling pressure on the British Pound (GBP).
USDJPY continues to act as a risk barometer, supported by a stronger US Dollar and expectations of milder trade tensions than a full-blown trade war. Comments from Bank of Japan Governor Kazuo Ueda also weigh in, as he reiterated the BoJ’s goal of achieving 2% inflation sustainably, dampening hopes for aggressive rate hikes from the Japanese central bank.
Commodity-linked currencies struggle despite cautious optimism, as the Trump administration hasn’t rolled back trade tariffs on China, the world’s biggest commodity user. However, China's lack of a strong response and mixed domestic data helped limit losses for the Australian, New Zealand, and Canadian Dollars. Even so, AUDUSD and NZDUSD reverse recent bounces off the lowest level since early 2020, while USDCAD jumps back to its highest level since 2003. Weak Crude Oil prices, concerns over potential Bank of Canada rate cuts, and political uncertainty in Ottawa also pressure the Canadian Dollar (CAD).
Gold struggles to maintain its three-day winning streak after pulling back from its all-time high, but still remains attractive to traders seeking a haven amid uncertainty over Trump’s tariffs and central bank policies. The cautious mood ahead of Friday’s US jobs report also supports Gold.
Crude Oil, however, failed to capitalize on news that the US shale industry and Saudi Arabia rejected Trump’s call to boost output. The black gold reversed its initial gains and dropped to a one-month low due to concerns over weaker energy demand and rising supply.
Bitcoin (BTCUSD) and Ethereum (ETHUSD) pull back, reversing the previous day’s recovery, as trade war concerns and a stronger US Dollar weigh on them. Additionally, a risk-off sentiment and a slowdown in ETF inflows contribute to the pressure, with buyers holding off for better entry points.
US tariff updates will be the key driver for market direction, keeping risk-takers on alert. US Factory Orders and JOLTS Job Openings for December will also be important. If the Trump administration retreats on China tariffs, a risk-on mood may return, boosting the US Dollar. Positive US data could strengthen the Dollar further, pressuring EURUSD, GBPUSD, commodity currencies, and Crude Oil if OPEC+ maintains its output policy. Meanwhile, Gold and the Japanese Yen may see renewed gains amid market uncertainty.
May the trading luck be with you!
