Forex Today: US Dollar pinned around seven-month lows

Here is what you need to know for January 25th The dollar index bottomed around the 102 neighbourhood, hovering close to levels not seen since May 2022, as concerns about a US recession and prospects of a less aggressive Federal Reserve spooked investors away from the greenback. This led to widespread volatility on the day across both commodities and the forex space with Gold price, in particular, flying around as the Euro ran higher on the back of hawkish commentary from the Europen Central Bank officials. 

The Federal Oen Market Committee is in its blackout period while investors believe that the central bank will hike rates by just 25bp at the February meeting where the main attention will stay with Fed Chair Powell’s tone around the level for “appropriately restrictive” interest rates. Fed fund futures have priced out almost any chance the Fed could move by 50 basis points next month and have steadily lowered the likely peak for rates to 4.75% to 5.0%, from the current 4.25% to 4.50%.

Meanwhile, ECB Governing Council hawks have been calling for 50bp rate hike. This has seen the Euro reach as high as $1.0927 vs. the dwindling US Dollar and to trade at its highest level since April last year. The Euro Stoxx 50 rose 0.8%.

The US Dollar still managed to perform pretty well relatively speaking vs. the Japanese Yen after the Bank of Japan (BOJ) defied market pressure to reverse its ultra-easy bond control policy last week. USD/JPY rose to 130.88 but sits between last week's range of 127.22 and 131.58.

The Great British Pound was pressured to a seven-month high against the US Dollar despite recent data showing that the British economy was performing better than feared. Nevertheless, the bears were on board and took the Pond Sterling to a low of 1.2323. 

The Canadian dollar was treading water while investors held off from making major bets ahead of a Bank of Canada interest rate decision balancing around 1.3380 to the greenback and pulling back from its strongest intraday level since Jan. 13 at 1.3343.

As for commodities and crypto, the oil price dipped with WTI easing 0.2% to $81.5/bbl. However, the main volatility in the complex came with the Gold price that was broadly unchanged at USD1,927.4/oz by the end of the day but trading within a wide range of between $1,911 and $1,935/oz.  Meanwhile, bitcoin, BTCUSD  was little changed on the day at $ 22,849, steadying after having jumped by about a third in value since early January. There are no major news events on the Asian calendar on Tuesday.