Market Drivers – US Session 09/02/2023

The US dollar has been higher with gains ahead of Wall Street’s opening, advancing at the end of the trading day as US indexes plunged ahead of the close though Dow surged earlier on robust earnings including Disney and PepsiCo.

The dollar benefited from higher government bond yields but also from comments by Fed’s Thomas Barkin, who said that the effects of the Fed’s policy tightening has been substantial while adding that macroeconomic data put back the risk of a recession. The yield on the 10-year Treasury note stands at 3.67%, up 4 bps, while the 2-year note offers 4.50%, up 5 bps.

Economic Data

The German Harmonized Index of Consumer Prices (HICP) unexpectedly rose by 9.2% YoY in January, below the 10% expected and easing from the previous 9.6%. The EUR/USD pair approached 1.0800 but faltered ahead of the level and trades at around 1.0740

Key Developments

The most noticed decline on Thursday was by the Gold Index (XAU/USD), as the precious metal reached a fresh weekly low of $1,859.72 per ounce. It bounced modestly from the level but trades at its lowest in over a month.

Japan’s Prime Minister Kishida is expected to name BOJ Governor Kuroda’s successor next week. Speculation revolves around whether Kishida will choose a more aggressive leader for the central bank that will end the ultra-loose monetary policy. The Japanese Yen edged lower in America, with USD/JPY trading at around 131.50, after falling to an intraday low of 130.33 at the beginning of the day.

GBP/USD peaked at 1.2191, holding on to gains but currently trading at around 1.2120. The Bank of England Monetary Policy Report Hearings provided support to the Pound. Governor Andrew Bailey, Chief Economist Huw Pill and policymaker Jonathan Haskel testified before the UK Treasury Select Committee.

They said that they expect inflation “to come down rapidly this year.” However, policymaker Silvana Tenreyro later in the day noted that, in her view, rates are now too high, and a massive recession would be needed to push inflation down to 2%. She finally added she would consider a rate cut.

Commodity-linked currencies trimmed early gains vs their American rival. AUD/USD trades at around 0.6940, while USD/CAD stands at 1.3450.

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