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The US Dollar Index has displayed negative performance for the second consecutive day around seven-month low. Dovish comments from Fed officials as well as mixed US data are among factors that do renew hopes for slowing down the pace of rate hiking and this tendency could hamper the DXY.
Risk-on mood, hawkish comments from the ECB’s policymakers also keep the US Dollar Index under pressure. In addition, expectations of a softer US Consumer Price Index reading favour DXY bears. Although the Fed policymakers provided no clear bearish signals, their hesitance in openly conveying the hawkish bias push traders towards expecting a softer interest rate hiking pace in 2023. This weighs on the US Dollar Index.
EUR/USD keeps hovering around 1.0750, unchanged for a second consecutive day, while GBP/USD settled around 1.2140. The AUD/USD pair started the day on the back foot, but trimmed losses and posted a modest advance, trading just above the 0.6900 level. The USD/CAD pair hovers around 1.3420, while USD/JPY stands at 132.40.
Gold hit a fresh eight-month high of $1,886.63 per ounce, but retreated ahead of Wall Street’s opening, ending the day with modest gains at around $1,877.00. Crude oil prices rallied, helped by a report from the US Energy Information Administration (EIA) as the organism expects global consumption of liquid fuels such as gasoline, diesel, and jet fuel, to set new record highs in 2024. The headline overshadowed a large build in US stockpiles.
Key Developments
Russian President Vladimir Putin has signaled that he is open to talks on Ukraine, although adding that an arrangement should be on Russian terms. A peaceful solution to the conflict remains far away. Fed’s Susan Collins reiterated her support for the smaller rate increases. The policymaker said that she leans at this stage to a 25 bps hike. She also mentioned that it is very data-dependent. Previously, Fed Chair Jerome Powell’s comments could not add clarity on the US central bank’s monetary policy outlook and raised dovish expectations.
ECB officials have been significantly hawkish, which in turn allows the Euro to remain firmer and shift funds from the US dollar. Among the ECB hawks, Robert Holzmann, Francois Villeroy de Galhau and Olli Rehn were the latest ones to propel the bloc’s currency and weigh on the DXY.
The retreating US Treasury yields and the risk-positive headlines surrounding China also favour the US Dollar Index bears, mainly due to the impact on the dollar’s safe-haven standing.
Investors are holding their breath for a second consecutive day, with major pairs holding on to familiar levels. Tensions mounted ahead of the release of December’s CPI reading, with the focus on central banks’ officials.
What to expect on Thursday?
Attention on Thursday will be on the United States Consumer Price Index, foreseen up by 6.5% YoY in December. The core reading is seen up by 5.7%, easing from the previous 6%.
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