Market Drivers – US Session – 19-01-2022

Demand for the US dollar eased on Wednesday, with the American currency edging lower against most major rivals. Losses were limited across the major currencies, with gold outstanding amid rallying beyond $1,840 an ounce, its highest since last November.

US Treasury yields inched higher at the beginning of the day to reach fresh 2-year highs but ended the day lower. The yield on the 10-year US Treasury note peaked at 1.902% and currently stands at 1.83%. Fears that inflation will force central banks into tighter monetary policies regardless of economic growth led the way.

The Australian dollar advanced versus the US dollar, ending the day around 0.7230, while the USD/CAD ended the day little changed in the 1.249’ price zone. Safe-haven currencies were little changed vs their US rival, with USD/JPY trading marginally lower around 114.25.

Economic Data
The only significant economic data during the US session was released by the American Petroleum Institute (API) estimating the inventory build this week for crude oil to be 1.404 million barrels above the predicted 1.367 million barrels. Th importance of this data, in fact, lies in its influence during the trading session as crude oil slipped from on the back of the data.

Other Developments
During a news conference in the East Room of the White House in Washington, D.C., US President Joe Biden on Wednesday said it is appropriate for the Federal Reserve to recalibrate the support it provides to the US economy, given the strength of the recovery and recent price increases.

Biden said it is the Federal Reserve’s job to rein in the fastest pace of inflation in decades, and backed the central bank’s plans to scale back monetary stimulus.

Earlier on Wednesday, Bank of England Governor Andrew Bailey, who is currently testifying before the UK Parliament’s Treasury Select Committee, said on Wednesday that regional agents are seeing some evidence of second-round inflation effects.

Stocks traded with a sour tone in Asia but were up during London trading hours, pushing Wall Street’s futures up. US indexes lost momentum through the session, ending the day mixed and not far from their opening levels.

The EUR/USD pair recovered towards the current 1.1340/50 price zone after Germany confirmed inflation at a multi-decade high of 5.3% in December. GBP/USD trades around 1.3620 after UK inflation posted a whopping 5.4% YoY by the end of 2021.

Risk-off persists heading into the US Federal Reserve’s monetary policy announcement next week, with investors turning cautious ahead of the event. Volatility may decrease while the dollar may remain under mild pressure.

Crude oil prices kept rallying. The black gold reached levels that were last seen in September 2014, with WTI currently trading at $85.90 a barrel. Australia will publish inflation and employment-related figures early on Thursday, while later into the day, the Turkey Central Bank will announce its monetary policy decision.

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BoE’s Bailey: Regional agents are seeing some evidence of second-round inflation effects