Forex Today: King Dollar holds reins as the US inflation week unfolds

Here is what you need to know on Monday, January 13:

Risk-off flows extended into Asian trading on Monday as investors digested Friday’s US labor market report, gearing up for the Consumer Price Index (CPI) data due later in the week.

The US Bureau of Labor Statistics (BLS) published the NFP report on Friday, which showed that the economy created 256,000 jobs in December against November’s 227,000 job gains and the expected 160,000 figure. The Unemployment Rate unexpectedly fell to 4.1%, compared to a steady reading of 4.2% expected in the reported period.

Following the US jobs report, markets are pricing in only one Fed rate cut, expecting the central bank to wait until at least June to reduce its policy rate, the CME Group’s FedWatch Tool shows.

Markets remain wary of increased hawkish sentiment surrounding the path of the US Federal Reserve's (Fed) interest rates in the face of the upcoming policies from US President-elect Donald Trump, which are seen as inflationary. Expectations of higher inflation and borrowing costs sent the US Treasury bond yields through the roof on Friday, with the US Dollar (USD) following suit.

The demand for the USD remains unabated early Monday as investors continue to run for cover due to the policy uncertainty in the Trump 2.0 era and the global bond market turmoil. The benchmark US 10-year Treasury bond yields are at their highest level since November 2023, eyeing a 5.0% key level retest.

Across the FX board, the Pound Sterling remains the weakest as GBP/USD hangs near fresh 14-month lows of 1.2126. Broad risk-aversion, the UK bond market instability and expectations of the Bank of England (BoE)-Fed policy divergence exacerbate the pair’s pain.

EUR/USD trades close to 1.0200, posting moderate losses in early European trading. The latest dovish commentary from the European Central Bank (ECB) Chief Economist Phillip Lane exerts downside pressure on the main currency pair. Lane said that “more easing from the Bank is likely.” ECB policymaker Olli Rehn noted that it makes sense to continue with rate cuts.

AUD/USD consolidates near four-year lows of 0.6131, unable to benefit from China’s efforts to stabilize the Yuan and strong Chinese trade data. China Foreign Exchange Committee (CFXC) vowed to support the Chinese Yuan in a meeting held in Beijing under the guidance of the People’s Bank of China (PBOC) on Monday. Meanwhile, China's trade surplus hit a record $992 billion in 2024, driven by a 21% rise in exports worth $3.6 trillion.

USD/JPY retreated from near 158.00, currently in the red below 157.50. Risk-off mood and BoJ rate hike hopes help put a fresh bid under the Japanese Yen despite a broadly firmer Greenback.

USD/CAD remains better bid near 1.4450, with upside attempts capped by rising Oil prices. WTI oil price flirts with three-month highs near $77.50 following the US Treasury’s imposition of sanctions on Russian oil supply on Friday.  

Gold buyers take a breather at a four-week peak just shy of $2,700. Gold price stalls its four-day uptrend as traders could resort to profit-taking ahead of the inflation test.