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The USD Index (DXY) reached a new yearly high in due to adjusted expectations of a rate cut by the Fed in March. This was in line with an additional narrative that suggested the ECB also could hold off on cutting rates until the summer, which ultimately seems to have supported the late rally in the single currency. In the same vein, the expectation of a firm hand from the BoE in the coming months appears to have been reinforced by higher-than-expected UK inflation numbers.
On Wednesday, the US dollar gained strength and propelled the USD Index (DXY) to new 2024 highs close to 103.70 against the backdrop of additional increases in US yields of various maturities. The US economy’s resiliency will be examined on Thursday when the regularly scheduled weekly Initial Claims, Housing Starts, Building Permits and the always-important Philly Fed Manufacturing Index are released.
EUR/USD dropped to new multi-week lows near 1.0840 band on the back of persistent strength in the US dollar, while ECB officials continued to pour cold water over expectations of interest rate cuts by the bank in H1 2024. Moving forward, the ECB will release its Accounts of the latest meeting, while President Lagarde is due to speak at the WEF in Davos.
Despite the dollar’s dominance, the British pound managed to derive support from higher-than-expected UK inflation figures in December, which in turn helped GBP/USD chart decent gains at the end of the day. There will be no data releases across the Channel on Thursday.
The needle-like march north in USD/JPY surpassed the 148.00 barrier amidst the continuation of the upside momentum in the US dollar in combination with another firm session in US yields across the board. On Thursday, Machinery Orders and final Industrial Production readings, coupled with weekly Foreign Bond Investment should keep traders entertained early in Asia.
There was no respite for the selling pressure around the Aussie dollar on Wednesday. That said, AUD/USD sank to fresh six-week lows near 0.6520 in response to usual dollar dynamics and discouraging results from the Chinese docket. Next of note in Australia is the labour market report for the month of December.
The intense move higher in the dollar, coupled with rising US yields across the curve, weighed further on both Gold and Silver. The sentiment around the latter further deteriorated in the wake of Chinese data releases.
Prices of the WTI rose past the $72.00 mark per barrel and partially reversed the recent weakness on the back of an upbeat report from the OPEC despite the poor prints from China and the stronger dollar. Traders’ focus will be on the release of the usual weekly report on US crude oil inventories by the EIA.
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