Market Drivers; US Session: The Eve of FOMC Decision

The US Dollar regained momentum, climbing to two-day highs as US yields rebounded and tariff-related headlines fueled market activity. All eyes are now on the Federal Open Market Committee (FOMC) meeting, a pivotal event that could shape market sentiment in the coming weeks.

The US Dollar’s Resurgence

The US Dollar Index (DXY) surged past the 108.00 mark, driven by renewed investor interest in the Greenback. This rebound comes ahead of the FOMC’s policy decision, which is expected to provide clarity on the Federal Reserve’s stance on interest rates. Alongside the FOMC meeting, key economic data releases, including weekly Mortgage Applications, Wholesale Inventories, and the advanced Goods Trade Balance, will offer further insights into the health of the US economy.

The Euro and British Pound both felt the pressure of the Dollar’s strength. EUR/USD dipped toward the 1.0400 support level, while GBP/USD slid to weekly lows near 1.2400. In the UK, Bank of England Governor Andrew Bailey is scheduled to speak, though the economic calendar remains otherwise quiet.

Yen and Commodity Currencies Under Pressure

USD/JPY briefly tested the 156.00 resistance level before retreating, as investors await the Bank of Japan’s meeting minutes and Consumer Confidence data. Meanwhile, the Australian Dollar continued its decline, hitting multi-day lows near 0.6230. Upcoming inflation data, including the Quarterly Inflation Rate and the Reserve Bank of Australia’s Monthly CPI Indicator, will be critical ahead of the RBA’s February meeting.

Oil Markets: Volatility Amid Supply Disruptions

Oil prices experienced modest gains, with WTI crude climbing back above 73.00 per barrel. The rebound was fueled by supply disruptions in Libya, where protests temporarily halted crude loadings, threatening 450,000 barrels per day of exports. Brent crude futures also rose, reaching 73.00 per barrel. Though market sentiment remains fragile due to geopolitical tensions and shifting demand dynamics.

The Middle Eastern crude market has shown resilience, with its premium over Brent widening to over $2 per barrel. This reflects increased demand for alternatives to Russian oil amid US sanctions. However, the broader tanker market has weakened, signaling ongoing adjustments in global supply chains.
On the demand side, China’s unexpected contraction in manufacturing activity has raised concerns about its oil consumption. US sanctions on Russian oil trade have further complicated the landscape, forcing Chinese refineries to seek alternative supplies and potentially reducing global oil flows by up to 1 million barrels per day.

Precious Metals: A Safe Haven Amid Uncertainty

Gold prices found support as global equities stabilized, climbing past 2,760 per ounce. Silver also rebounded, recovering from Monday’s decline to trade above 2,760 per ounce. The precious metals market remains sensitive to shifts in risk sentiment, with investors closely monitoring the FOMC’s upcoming decision for clues on future monetary policy.

Looking Ahead

The FOMC meeting is poised to dominate market sentiment, with investors eager for signals on the Fed’s rate trajectory. While the US Dollar’s recent strength reflects optimism about the economy, lingering uncertainties in oil markets and global demand dynamics could keep volatility elevated.

As markets navigate these crosscurrents, the interplay between monetary policy, geopolitical risks, and economic data will remain critical. The coming days will test the resilience of global markets, with the FOMC’s decision serving as a potential catalyst for renewed momentum or further turbulence.

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