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The US dollar was strongly supported by investors’ diminishing speculation about Fed interest rate cuts as US markets returned to a regular schedule. Meanwhile, the European currency was eventually affected by ECB officials’ continued disagreement with market perceptions regarding the timing of rate reductions. It is anticipated that Fedspeak, US retail sales, and Christine Lagarde’s speech in Davos will continue to dominate market attention.
In reaction to the Fed’s continued repricing of the timetable of interest rate reduction, demand for the US dollar picked up extra speed on Tuesday, pushing the USD Index (DXY) to fresh YTD heights far over the 103.00 mark and a corresponding gain in US rates. The Fed’s Beige Book, December Retail Sales, and Industrial Production will be the next important US data points. FOMC Barr, Bowman, Woods, and Williams will also be speaking.
With robust demand for the dollar rebounding, the EUR/USD exacerbated its losses and fell to the sub-1.0900 level, setting new 2024 lows near 1.0860. On the domestic schedule, the ECB President Christine Lagarde’s speech at the WEF in Davos and the final December inflation rate are also due.
GBP/USD kept up its bearish trend and declined to the area around 1.2600 as the strength of the dollar continued to pressure the risk-complex.
The UK labour market report’s overall upbeat tone did not cause the British pound to move higher. The release of the December inflation rate will be the centre of attention on Wednesday throughout the Channel.
USD/JPY extended its bounce past the 147.00 barrier and recorded a new YTD peak against the backdrop of the sharp improvement in the Dollar and rising US yields across the curve. The release of the Reuters Tankan Index will be in the limelight on Wednesday.
The high-beta currency’s mood persisted as AUD/USD fell for the fourth straight session, testing the 200-day SMA in the 0.6580 zone. AUD should closely monitor the Chinese docket, which includes the Q4 GDP Growth Rate, Industrial Production, Retail Sales, and the House Price Index, among other data, unless there are any data releases in Australia on Wednesday.
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