Market Drivers – US Session, January 16

A significant amount of optimism seemed to weaken at the beginning of this quiet week, with US markets closed observing Martin Luther King holiday. The dollar managed to recover ahead of the daily close but ended the day with modest gains against most major rivals, and it is still at risk of falling.

The US dollar started the trading week from the same point where it departed the previous one, retreating across board. Investors are still cheering on further optimism and the easing price pressures all over the United States.

The main source of optimism is the possibility of a looming deceleration of monetary policy tightening by the Fed.

The EUR/USD pair hovers around 1.0815, while GBP/USD trades a handful of pips below the 1.2200 mark. The AUD/USD pair briefly traded above the 0.7000 mark but settled at around 0.6950, while USD/CAD seesaws around 1.3400. The USD/JPY pair recovered from a fresh multi-month low of 127.21 and currently stands at 128.50.

Gold retains the $1,900 mark, now consolidating at $1,914, while Crude Oil Prices edged lower, and WTI settled at $79.12 a barrel.

Key Developments

The main focus was on Japan Government Bonds as the yield on the 10-year note surged to 0.52%, pushing the upper end of the BoJ’s range.

The Bank of Japan will hold is having its next monetary policy meeting this week, and raising yields spurred speculation policymakers will finally introduce a shift in their monetary policy. Governor Haruhiko Kuroda’s term ends next April, and speculative interest believes he will introduce changes to the ultra-loose policy before leaving.

Economic Data

BoC’s Consumer Survey showed that expectations for 1-year ahead inflation increased to a record 7.18% from 7.11% in the third quarter, while 2-year ahead inflation expectations, in Canada, fell to 5.14% from 5.22% in the third quarter.

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