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The Federal Reserve (Fed) commented in its latest Beige Book survey released on Wednesday that economic activity increased “slightly to moderately” across the US in late November and December, supported by strong holiday sales.
Key quotes
Economic activity increased slightly to moderately across the twelve Federal Reserve Districts in late November and December.
Consumer spending moved up moderately, with strong holiday sales exceeding expectations.
Manufacturing decreased slightly on the net; some manufacturers stockpiled inventories in anticipation of higher tariffs.
Commercial real estate sales edged up.
More optimism about the 2025 outlook, though concerns remain about immigration and tariff policy affecting the economy.
Employment ticked up slightly, with six Districts reporting increases and six reporting no change.
Wage growth picked up at a moderate pace, but there were reports of easing wage pressures.
Prices increased modestly overall, with growth ranging from flat to moderate.
Market reaction
The US Dollar Index (DXY) is trading 0.04% lower on the day at 109.06, as of writing.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Canadian Prime Minister Justin Trudeau said on Wednesday that Canada will consider every kind of countermeasure if US President-elect Donald Trump goes ahead with a threat to impose a 25% tariff on Canadian imports, per Reuters.
Key quotes
"Nothing can be off the table if the U.S. continues to choose to move forward with these punishing tariffs," Trudeau said after meeting the premiers of the 10 provinces to discuss potential responses.”
"I support the principle of a proportional dollar for dollar response.”
Market reaction
The USD/CAD pair is trading 0.05% higher on the day at 1.4335, as of writing.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
The Bank of England (BoE) policymaker Alan Taylor said on Wednesday that the BoE should move quickly to cut interest rates “pre-emptively” as the UK is “in the last half mile on inflation.”
Key quotes
"Right now, I think it makes sense to cut rates pre-emptively to take out a little insurance against this change in the balance of risks, given that our policy rate is still far above neutral and would still remain very restrictive.”
"We are in the last half mile on inflation, but with the economy weakening, it’s time to get interest rates back toward normal to sustain a soft landing.”
"It is this logic that convinced me to vote for an interest rate cut in December.”
“On multiple fronts, UK businesses and households could face a near-term cashflow squeeze, and we need to keep a careful eye on this important potential downside trigger.”
“I fully appreciate these challenges for businesses and households and the headwinds they pose for the UK economic outlook, together with all the other emerging downside economic risks in the UK and around the world.”
Market reaction
The GBP/USD pair is trading 0.03% lower on the day at 1.2239, as of writing.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australi
- USD/CAD softens to around 1.4335 in Thursday’s early Asian session.
- The cooler-than-expected US core CPI revives bets on Fed rate cuts this year.
- Crude oil prices rise on US crude draw and Russia sanctions, supporting the commodity-linked Loonie.
The USD/CAD pair extends the decline to near 1.4335 during the early Asian session on Thursday. The US Dollar (USD) weakens after the cooler-than-expected inflation data triggered the expectation that the US Federal Reserve (Fed) could cut interest rates twice this year.
Data released by the Bureau of Labor Statistics on Thursday showed that the US Consumer Price Index (CPI) climbed 2.9% on a yearly basis in December, compared to 2.7% in November. This reading came in line with market expectations. The core CPI, which excludes volatile food and energy prices, rose 3.2% on a yearly basis in December, below the previous reading and the market consensus of 3.3%.
The softer inflation data revives the bets on Fed rate cuts this year, weighing on the Greenback. "The cooler inflation print was a sign for traders to cut some long positions in the dollar, said Joseph Trevisani, senior analyst at FX Street in New York.
On the Loonie front, a rise in crude oil prices amid a large draw in U.S. crude stockpiles and potential supply disruptions caused by new United States (US) sanctions on Russia boosts the commodity-linked Canadian Dollar (CAD). Canada is the largest oil exporter to the US, and higher crude oil prices tend to have a positive impact on the CAD value.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
- Silver climbs, breaching 200-day SMA at $29.98, enhancing buying momentum.
- Major resistance at $31.00; break could aim for December 12 high of $32.32.
- Pullback below 50-day SMA might prompt retest of 200-day SMA, down to $28.74.
Silver's price stages a comeback, rising above the 50-day Simple Moving Average (SMA) at $30.32 and eyeing a break of the 100-day SMA. At the time of writing, the XAG/USD trades at $30.64, having gained over 2.64% on Wednesday.
XAG/USD Price Forecast: Technical outlook
On its way toward its current price, XAG/USD cleared the 200-day SMA at $29.98, which exacerbated the upward move. Yet buyers need to clear the 100-day SMA at $30.82 so Silver can extend its gains.
Momentum favors further upside, yet consolidation lies ahead as the Relative Strength Index (RSI) is flat, but above the latest peak.
If buyers clear the 100-day SMA, $31.00 emerges as the next key resistance level. A break above this level opens the door to testing the latest cycle high at $32.32, the December 12 daily high.
On the other hand, if sellers step in and push XAG/USD below the 50-day SMA, it could pave the way towards $29.98, the 200-day SMA. On further weakness, the next stop would be December’s 19 swing low of $28.74.
XAG/USD Price Chart - Daily
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
- NZD/JPY landed near 87.80 after the latest rejection at 89.00.
- RSI slides to 44 in negative territory, hinting that selling forces may be gaining ground.
- MACD histogram prints flat red bars, underscoring the pair’s fragile recovery attempts.
The NZD/JPY cross entered deeper negative territory on Wednesday, giving back 0.77% as it settled around 87.80. Sellers took charge following yet another failed effort to conquer the 20-day Simple Moving Average (SMA) near the 89.00 mark. Although the pair had initially shown signs of stabilization within the broader 89.00–87.00 channel, persistent selling pressure has kept it from mounting a convincing rebound.
On the technical front, the Relative Strength Index (RSI) has weakened to 44, reflecting a loss of buying momentum. Similarly, the Moving Average Convergence Divergence (MACD) histogram remains flat and in the red, indicating that the pair’s attempts at recovery lack robust follow-through. This combination of weakening indicators and repeated rejections at 89.00 casts doubt on any near-term upside potential.
As for immediate levels to watch, a drop under 87.50 would place the 87.00 floor under scrutiny, potentially dragging NZD/JPY into deeper territory if selling picks up. In contrast, a clean break above 89.00 remains critical to shifting the short-term bias back toward bullish territory, though buyers seem reluctant to push the market decisively higher at this juncture.
NZD/JPY daily chart
- Pound closes slightly below Tuesday's high, consolidating between 1.2210 and 1.2240.
- Resistance at 1.2299; above 1.2250 could extend gains to 1.2351.
- Break below 1.2200 may renew selling, targeting supports at 1.2136 and 1.2099.
The Pound Sterling posted modest gains on Wednesday after hit seesawing in a wide range of 1.2154 - 1.2306 during the day, yet stabilized at current exchange rates. At the time of writing, the GBP/USD trades at 1.2241, set to close below Tuesday’s high of 1.2249.
GBP/USD Price Forecast: Technical outlook
The GBP/USD downtrend remains in place, although it consolidated at around 1.2210 - 1.2240. During the session, buyers tested strong resistance at the April 22 low of 1.2299 before retreating beneath 1.2250. Should they hold to gains above the latter, they could challenge 1.2299 before targeting 1.2351, the January 2 swing low that turned resistance. Further upside is at 1.2400.
The downtrend could resume once sellers clear 1.2200. Once cleared, the next support would be the January 14 low of 1.2136, followed by the January 13 bottom of 1.2099.
GBP/USD Price Chart - Daily
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.00% | -0.00% | 0.00% | -0.00% | -0.00% | -0.01% | 0.01% | |
| EUR | 0.00% | -0.01% | 0.02% | 0.00% | -0.01% | 0.00% | 0.01% | |
| GBP | 0.00% | 0.00% | 0.04% | 0.00% | 0.00% | -0.01% | 0.00% | |
| JPY | 0.00% | -0.02% | -0.04% | -0.01% | -0.02% | -0.02% | -0.02% | |
| CAD | 0.00% | 0.00% | -0.00% | 0.00% | -0.00% | -0.01% | 0.00% | |
| AUD | 0.00% | 0.00% | -0.00% | 0.02% | 0.00% | 0.00% | 0.00% | |
| NZD | 0.00% | 0.00% | 0.00% | 0.02% | 0.00% | -0.00% | 0.00% | |
| CHF | -0.01% | -0.01% | -0.01% | 0.02% | -0.00% | -0.00% | -0.01% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
- NZD/USD rises settling near 0.5615 as it flirts with the 20-day SMA.
- RSI jumps to 42, moving sharply upward yet still anchored in negative territory.
- MACD histogram prints decreasing green bars, highlighting a tempered recovery outlook.
The NZD/USD pair added a modest 0.30% on Wednesday, edging up to 0.5615 after extending gains beyond its 20-day Simple Moving Average (SMA). This marginal push above the moving average could be the catalyst bulls have been waiting for, provided it holds steady in the coming sessions. Sentiment has shown signs of improving from oversold levels, although the market tone remains cautious overall.
Technical readings suggest that momentum is beginning to shift. While the Relative Strength Index (RSI) has climbed to 42, indicating a hopeful uptick, it remains positioned in negative territory. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram is producing fewer green bars, signaling that, although buyers are gradually stepping in, the pair’s rebound remains fragile.
If NZD/USD can solidify its stance above the 20-day SMA near 0.5600, traders may eye further upside toward the 0.5650 resistance zone, with a move beyond this level potentially opening the door to 0.5700. Conversely, a drop back under 0.5580 would undermine the recent bounce and leave the pair vulnerable to retesting the 0.5550 handle or lower.
NZD/USD daily chart
- The Australian Unemployment Rate is foreseen at 4% in December.
- Employment Change is expected to include a large increase in full-time jobs.
- AUD/USD corrected from multi-year lows, sellers retain control.
The Australian Bureau of Statistics (ABS) will release the December monthly employment report at 00:30 GMT on Thursday. The country is expected to have added 15K new job positions, while the Unemployment Rate is expected to tick higher from the 3.9% posted in November to 4.0%. The Australian Dollar (AUD) is at around 0.6200 against the US Dollar (USD), not far from a fresh multi-year low of 0.6130 posted in early January.
The ABS Employment Change report separates full-time from part-time jobs. According to its definition, full-time jobs imply working 38 or more hours per week and usually include additional benefits, but they mostly represent consistent income. On the other hand, part-time employment generally offers higher hourly rates but lacks consistency and benefits. This is why full-time jobs are given more weight than part-time ones when setting the directional path for the AUD.
In November, Australia created 35.6K new job positions, adding 52.6K new full-time positions and losing 17k part-time ones.
Australian Unemployment Rate seen up in December
The Australian Unemployment Rate stood between 4% and 4.2% between April and September 2024, and the decline to 3.9% in November was a positive surprise. The anticipated 4% in December, despite being higher than the previous, is not a level that could trigger any concerns.
Meanwhile, the Reserve Bank of Australia (RBA) has decided to leave the cash rate target unchanged at 4.35%. On the one hand, the Board welcomed that inflation “has fallen substantially since the peak in 2022,” with headline inflation at 2.8% over the year to the September quarter. However, underlying inflation stood at 3.5% in the same period, “still some way from the 2.5% midpoint of the inflation target.” The RBA maintained its inflation forecast, indicating that price pressures won’t fall significantly within the target band until 2026.
Regarding employment, policymakers noted that a range of indicators suggest that labour market conditions remain tight. “The unemployment rate was 4.1% in September, up from the trough of 3.5% in late 2022. But the participation rate remains at record highs, vacancies are still elevated and average hours worked have stabilised. At the same time, some cyclical measures of the labour market including youth unemployment and underemployment have recently declined,” the monetary policy meeting statement reads.
The monthly report does not include wage growth. Such figures are released on a quarterly basis and the latest one showed the annualised Wage Price Index at 3.5%, also above the desired 2.5% midpoint.
Finally, it is worth remembering that financial markets are looking elsewhere: United States (US) President-elect Donald Trump will take office next Monday and pledged to impose massive tariffs. Risk aversion dominates financial boards amid fears his policies will push inflationary pressures up. As a result, the USD reached fresh multi-month highs against most major rivals this week and market players suspect the USD rally is far from over.
When will the Australian employment report be released and how could it affect AUD/USD?
The ABS will publish the December employment report early on Thursday. As previously stated, Australia is expected to have added 15K new job positions in the month, while the Unemployment Rate is foreseen at 4.0%. Finally, the Participation Rate is expected to hold at 67%.
Generally speaking, a better-than-anticipated employment report will boost the AUD, even if the more significant increase comes from part-time jobs. However, the advance could be more sustainable if the increase comes from full-time positions. The opposite scenario is also valid, with soft figures weighing on the Australian currency. At this point, the report has no chance of impacting the upcoming RBA decision.
As mentioned, the AUD/USD pair trades around the 0.6200 mark, not far from an almost four-year low of 0.6130. According to Valeria Bednarik, Chief Analyst at FXStreet, “the current AUD/USD advance seems corrective, given the USD extreme overbought conditions. Caution ahead of Trump’s government favors demand for safe-haven assets.”
Bednarik adds: “From a technical point of view, AUD/USD could soon resume its decline. The daily chart shows that it is up for a third consecutive day, yet still below all its moving averages. A firmly bearish 20 Simple Moving Average (SMA) provides near-term dynamic resistance at around 0.6220. At the same time, the 100 SMA is crossing below the 200 SMA, although both of them develop over 300 pips above the current level, in line with the dominant bearish trend. Finally, technical indicators corrected extreme oversold conditions, but remain within negative levels.”
“A critical resistance comes at 0.6301, January 1st top. Sellers will likely reappear around it, should strong employment figures push it higher. The immediate support, on the other hand, is the January 14 low at 0.6160, followed by the mentioned 0.6130 low. A break below the latter exposes the psychological 0.6000 mark.”
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
- Aussie climbs 0.42% against the USD to 0.6225 on Wednesday.
- China trade data, Yuan stabilization bolster risk appetite.
- US Dollar slips after softer inflation signals lead investors to dump the Greenback.
The Australian Dollar receives support from improved market sentiment and strong commodity prices. The AUD gained ground on robust trade data from China and Beijing’s moves to stabilize the Yuan. Meanwhile, the US Dollar depreciated in the wake of underwhelming Consumer Price Index (CPI) inflation figures reported on Wednesday.
Daily digest market movers: Aussie continues weak run after stellar US jobs report
- The US Dollar Index oscillated between gains and losses on Wednesday, dipping below 109.00 after the CPI release, then bouncing to 109.30 near the session’s end.
- The Australian Dollar extended its rebound above 0.6200, eyeing a possible test of the 0.6300 region in the short term.
- The annual CPI came in at 2.9%, up from 2.7%, while core inflation rose 0.2% MoM and 3.2% YoY, slightly below expectations.
- US Treasury yields sank post-CPI, with the 10-year benchmark dropping to 4.65% after hitting a 14-month high of 4.80%.
- On the negative side for the Aussie, the Reserve Bank of Australia considers a potential rate cut in February, citing tepid domestic growth and subdued inflation risks.
AUD/USD technical outlook: Bulls reclaim 20-day SMA as momentum improves
The AUD/USD rose to 0.6225 on Wednesday, extending its recovery from multi-year lows. The Relative Strength Index (RSI) stands at 49, climbing sharply from negative territory, while the Moving Average Convergence Divergence (MACD) histogram prints flat red bars, hinting that bearish pressure is waning.
Notably, the pair managed to jump above its 20-day Simple Moving Average (SMA), a development that could encourage additional upside if follow-through buying emerges. Nonetheless, the Aussie remains vulnerable to lingering RBA dovishness and a still-resilient US Dollar underpinned by robust economic data.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
- The Mexican Peso maintains its upward trajectory against the Dollar, buoyed by improved Gross Fixed Investment in October.
- Mixed US inflation data, with core figures below expectations, bolsters the market view of possible continued Fed easing.
- Divergent monetary policies between Banxico and the Fed could limit the Peso’s advance, with key economic data due next week.
The Mexican Peso clings to earlier gains against the Greenback on Wednesday following the release of mixed United States (US) inflation data. Though headline inflation increased, core figures dipped compared to estimates and previous data. Therefore, the USD/MXN dropped 0.09%, trading at 20.48 at the time of writing.
The market mood remains upbeat following the release of US inflation data. Mixed figures revealed by the US Bureau of Labor Statistics (BLS) weighed in the US Dollar as traders grew confident that the Federal Reserve (Fed) might continue to ease monetary policy. Recently, Fed policymakers acknowledged they were less worried about the labor market yet showed concerns about “stickier” prices.
In Mexico, Gross Fixed Investment improved in October, according to monthly figures. However, on an annual basis, investment shrank for the second straight month.
After the data, USD/MXN continued its downtrend for the third day. However, charts suggest that the pair may face strong support before testing the crucial $20.00 figure.
In addition, the Central Bank divergence between the Bank of Mexico (Banxico) and the Federal Reserve could cap Peso’s gains. Banxico hinted it’s ready to increase the rhythm of monetary policy easing, while the Fed has opted for a gradual approach.
Mexico’s economic docket is absent this week, but next week’s inflation figures for the first fifteen days of January could set Banxico’s tone for the first meeting of the year. Investors will also eye the release of Economic Activity figures, a proxy for the Gross Domestic Product (GDP)
The US schedule will feature Retail Sales and Initial Jobless Claims data on Thursday.
Daily digest market movers: Mexican Peso benefits from weak US Dollar
- Overall, the US Dollar weakness keeps USD/MXN pressured. The US Dollar Index (DXY), which tracks the performance of the Greenback versus six other currencies, falls 0.05% to 109.12.
- The December US Consumer Price Index (CPI) increased by 2.9% YoY, in line with expectations and higher than November’s 2.7%. Core CPI rose by 3.2% YoY, slightly below the 3.3% recorded in the previous month.
- Mexico’s Gross Fixed Investment expanded by 0.1% in October from the previous month, revealed the Instituto Nacional de Estadistica Geografia e Informatica (INEGI). For the same period a year earlier, machinery, equipment and construction spending plunged 2.6%, up from a 2.9% contraction.
- Upcoming US data includes Retail Sales, which are projected to grow by 0.6% Month over Month in December, down from November’s 0.7%. Initial Jobless Claims for the week ending January 11 are expected to rise to 210K, up from 201 K.
- New York Fed President John Williams noted that the neutral interest rate is elevated due to the country’s high debt levels. While inflation has eased, Williams emphasized the Fed is monitoring potential fiscal policy changes by elected officials.
- Chicago’s Fed Austan Goolsbee was dovish. He said he still sees continued progress on inflation and added that for the last six months, PCE inflation has run close to the 2% goal. Earlier, Richmond Fed Thomas Barkin commented that inflation is approaching the 2% target and added that the labor market has stabilized.
- Minneapolis Fed President Neel Kashkari said that tariffs do not cause inflation. But tit-for-tat retaliation is more complicated.
USD/MXN technical outlook: Mexican Peso recovers as USD/MXN falls below 20.50
The USD/MXN pair is upward biased despite retreating toward the 50-day Simple Moving Average (SMA) of 20.32. Although the exotic pair is trending lower during the current week, the Relative Strength Index (RSI) suggests that buyers remain in charge.
If USD/MXN clears the 50-day SMA, this will expose the 100-day SMA at 19.99. A breach of the latter will send the pair towards the October 18 swing low of 19.64, ahead of the 19.50 figure.
Conversely, if USD/MXN rises past 20.50, the first resistance will be the year-to-date (YTD) peak of 20.90. If surpassed, the next stop would be March 8, 2022, which is a high of 21.46, ahead of 21.50, and at the 22.00 psychological level.
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
- The Canadian Dollar found a scant 0.2% gain against the Greenback.
- Data from Canada remains limited on the docket throughout this week.
- Cooling core CPI inflation figures from the US are pushing down USD flows.
The Canadian Dollar (CAD) caught another thin bid on Wednesday, gaining a thin one-fifth of one percent against the Greenback as investor sentiment broadly picks up. The CAD is now on a three-day winning streak against the safe haven US Dollar, but the Loonie is still sticking close to multi-year lows as confidence remains tepid.
Canadian Manufacturing and Wholesale Sales figures from November came in on Wednesday, but overall, markets were focused squarely on key US Consumer Price Index (CPI) inflation metrics that were released side-by-side with the long-dated Canadian data.
Daily digest market movers: Canadian Dollar catches a break from Greenback bidding
- The Canadian Dollar rose 0.2% against the US Dollar, dragging USD/CAD down to 1.4330.
- Canadian Manufacturing Sales rose 0.8% MoM in November, beating the forecast 0.5% but still falling from the previous 2.1%.
- Canadian Wholesale Sales contracted 0.2% over the same period, beating the expected -0.7% but still down from the revised 1.3%.
- US headline CPI inflation accelerated in December, but core CPI ticked down slightly, prompting further market hopes of easing inflation pressures that could, ostensibly, lead to further Federal Reserve (Fed) rate cuts in the future.
- The Fed is currently expected to stand pat on interest rates until sometime in the second half of 2025.
Canadian Dollar price forecast
The Canadian Dollar’s near-term rebound is helping to ease pressure in the USD/CAD chart, but bullish momentum behind the Loonie remains tepid, if not downright half-hearted. The pair is still trading well within a consolidation pattern hardening on the daily candles, and the 1.4300 handle is looking like more of a barrier than a target for CAD bidders.
USD/CAD daily chart
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
The selling pressure remained well in place around the Greenback, which saw its weekly corrective decline gather extra pace after US inflation tracked by the CPI matched market consensus in December. The door for a rate cut in January appears still open.
Here is what you need to know on Thursday, January 16:
The US Dollar Index (DXY) dropped to new five-day lows after breaking below the 109.00 support, as investors seem to have placed some hopes on a Fed rate cut later in the month. Retail Sales and weekly Initial Jobless Claims take centre stage, seconded by Import/Export Prices, the Philly Fed Manufacturing Index, Business Inventories, and the NAHB Housing Market index.
EUR/USD broke above the 1.0300 hurdle with certain conviction in response to initial USD-selling, although this move lost traction afterwards, leaving the pair with modest losses for the day. The final Inflation Rate in Germany is due along with EMU’s Balance of Trade results and the ECB Accounts.
GBP/USD advanced for the third consecutive day on Wednesday, managing to briefly trespass 1.2300 the figure following another negative day in the Greenback. An interesting UK docket on Thursday will include GDP figures, Industrial and Manufacturing Production, Construction Output, and Balance of Trade.
USD/JPY retreated heavily to four-week lows in the sub-156.00 region following the marked pullback in the Dollar and diminishing US yields across the curve. Japan’s Producer Prices will be at the centre of the debate.
Another positive day for the risk complex saw AUD/USD advance to six-day highs near 0.6250. The main focus in Oz will be on the release of the Australian labour market report.
Prices of WTI resumed their uptrend and traded at shouting distance from recent peaks just above the $79.00 mark per barrel.
Prices of Gold traded in a constructive fashion following the Dollar’s pullback and the marked retracement in US yields across different time frames, with the ounce troy hovering around the $2,700 mark on Wednesday. Silver prices added to Tuesday’s gains and climbed beyond the key $30.00 mark per ounce.
- Lingering economic uncertainties drive traders to revisit growth forecasts, spurring cautious positioning across major currency pairs.
- Softer-than-forecast inflation prints spark questions over the Federal Reserve’s next move, compelling markets to reassess rate expectations.
- Benchmark Treasury yields tumble from recent peaks, highlighting market jitters following the latest inflation figures.
The US Dollar (DXY) turns this week into a firm loss, eking out more weakness on Wednesday. The US December CPI release arrived a bit softer than predicted, fueling speculation about the Fed’s path ahead. The US Dollar Index, which measures the value of the USD against a basket of currencies, snaps below 109.00 and could accelerate its downside from here.
Daily digest market movers: US Dollar remains soft after CPI data
- Headline CPI for December climbed by 2.9% YoY, undershooting some market whispers of a stronger result.
- Core CPI rose by 3.2% over the same period, stepping down from November’s pace as monthly core inflation printed at 0.2%.
- The CME FedWatch Tool implies that investors have priced in a hold this month, consistent with a data-dependent stance.
- Yields crumble: The 10-year note slips to around 4.65% from Monday’s 14-month high, reflecting diminished inflation expectations and lighter risk premium.
- Regional surveys point to mixed economic activity with some districts reporting subdued expansion while others see a mild pullback.
- Tariff talk remains a wildcard as some districts worry new policy changes might introduce an upside inflation risk, complicating the Fed’s job.
DXY technical outlook: Mild setback near multi-year highs
The US Dollar Index slid below the 109.00 threshold as traders locked in gains following softer inflation readings. Despite the pullback, the broader uptrend remains intact near multi-year peaks with the 20-day Simple Moving Average repelling sellers.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
- The Dow Jones lurched over 750 points higher on Wednesday.
- Equities are broadly pivoting into a risk-on sentiment stance.
- Investors brush off rising headline CPI as core CPI measures tick down.
The Dow Jones Industrial Average (DJIA) climbed around 750 points at its peak on Wednesday, pushing into the bullish side to pass back through the 43,000 handle before getting hung up on the 50-day Exponential Moving Average (EMA). Equity markets are tilting firmly into the bullish camp after a key core inflation gauge ticked slightly lower.
According to the Consumer Price Index (CPI), headline inflation rose in December from a year before, with prices climbing 2.9% YoY compared to 2.7% previously. The acceleration in headline inflation was anticipated by market analysts, though December’s standalone figure still surprised to the upside, coming in at 0.4% MoM compared to the expected flat hold at 0.3%.
The real magic for equity markets came in the core CPI print, which excludes volatile items liike food and energy prices. Annualized core inflation ticked down to 3.2% YoY, beating the expected hold at the previous period’s 3.3%. Choosing to ignore rising food and energy prices doesn’t mean consumers won’t magically have to stop paying for them, and investors are running the risk of getting lost in the details and focusing on the wrong thing: odds of a Federal Reserve (Fed) rate cut on January 29 moved from 2.0% to 2.7% after the CPI print, according to the CME’s FedWatch Tool.
Dow Jones news
Wednesday is turning out to be a firmly bullish day for the Dow Jones, with all but five of the average’s listed securities trading above the day’s opening bids. Honeywell International (HON) pulled back around 0.6% to $217 as investors took profits on a recent bullish upswing for the company. Goldman Sachs (GS) rose to the top of the DJIA during the midweek market session, climbing 6.5% and pushing into $604 per share after the major investment bank’s profits surged to a three-year high.
Dow Jones price forecast
The Dow Jones’ latest bearish weak point could be over as price action pushes back north of the 50-day EMA and reclaims the 43,000 handle. The major equity index pulled back into alarm bell territory just above the 200-day EMA near 41,200, but things may be back to their bullish ways now that the Dow has climbed 3.7% in just three days.
42,000 has proven to be the technical floor holding up bids, at least for the time being. Selling pressure has remained unable to push prices meaningfully back below the key figure, and bidders are coming out of the woodwork to try and push the Dow Jones back into record highs set above 45,000.
Dow Jones daily chart
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
- Gold extends gains as US core inflation was better than expected, sparking a drop in Treasury yields.
- Traders now anticipate the Fed might cut rates by 40 basis points by the end of 2025, adjusting market expectations.
- Potential tariffs by the upcoming Trump administration could counter disinflationary trends, impacting gold's trajectory.
Gold climbed for the second straight day due to a plunge in United States (US) yields following data that hinted at fading core inflation. This suggests that the Federal Reserve (Fed) could ease policy due to the disinflation trend. The XAU/USD trades at $2,690.
The golden metal resumed its uptrend after the US Bureau of Labor Statistics (BLS) revealed that underlying consumer inflation dipped compared to estimates and the previous month’s reading. The data sent US yields tumbling, as there is an increasing chance that the Fed will not exclude interest rate cuts following the December meeting.
After the data, traders estimate the US central bank to deliver 40 basis points (bps) of easing towards the end of 2025.
However, Gold is not out of the woods yet, as the upcoming Donald Trump administration has on its agenda applying tariffs, which could stoke inflation and prevent the Fed from lowering borrowing costs.
If the upcoming administration does indeed proceed with tariffs, this could boost the US Dollar (USD) to the detriment of the non-yielding metal.
Meanwhile, financial markets focus on US Retail Sales, unemployment claims and Fed speaking.
Daily digest market movers: Gold’s jump sponsored by plummeting US real yields
- Gold extended its gains as real yields dropped. Measured by the 10-year Treasury Inflation-Protected Securities (TIPS) yield, tumbled nine and a half basis points (bps) from 2.33% to 2.234%.
- The US Dollar Index (DXY), which tracks the dollar's performance against six currencies, rose 0.09% to 109.29, recovering from a daily low of 108.62.
- In December, the Consumer Price Index (CPI) rose by 2.9% YoY as expected, above the previous month’s 2.7%. Core CPI for the same period expanded by 3.2% YoY, less than the 3.3% registered in November,
- Ahead in the calendar, Retail Sales are expected at 0.6% MoM, down from 0.7% in November. Initial Jobless Claims for the week ending January 11 are projected to jump from 201K to 210K.
- New York Fed President John Williams said the neutral rate is much higher due to the country’s high debt levels. He added that inflation has retreated, yet the Fed is awaiting what elected officials might do on fiscal policy.
- The CME FedWatch Tool shows investors are eyeing the first rate cut for the June 18 meeting.
XAU/USD technical outlook: Gold price surges towards $2,700 as US yields drop
Gold’s uptrend remains intact, with buyers eyeing a clear break of $2,700. Bulls are gathering steam, as depicted by the Relative Strength Index (RSI) and aiming up indicates that momentum favors higher prices. Once XAU/USD clears $2,700, the next resistance would be the December 12 peak of $2,726, followed by the record high at $2,790.
Conversely, if XAU/USD drops below $2,650, the next support would be the 50-day Simple Moving Average (SMA) at $2,643, followed by the 100-day SMA at $2,633.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee hit newswires on Wednesday shortly after a fresh update to US inflation figures.
Key highlights
I still see continued progress on inflation.
I am optimistic for 2025 on a soft landing.
For the last 6 months, PCE inflation has run close to the 2% target.
There's been an uptick in business confidence and uncertainty since the election.
The CPI report is somewhat encouraging, and somewhat discouraging, in equal measure.
I am wary of the seasonal pattern of inflation.
If Congress and the President begin drafting policies that will raise prices, the Fed has to think about that. What matters is the impact of policies as a whole.
Federal Reserve Bank of New York President John Williams noted on Wednesday that the Fed's future monetary policy decisions will depend heavily on economic data. He highlighted the significant uncertainty facing the Fed, much of which stems from potential changes in government policy.
Key Quotes
Monetary policy data-dependent in highly uncertain environment.
Government policy outlook main source of uncertainty.
Monetary policy ‘well positioned’ for economic outlook.
Disinflation process to continue, could be choppy.
Improvement in supply/demand balance allowed rate cuts.
Balance sheet drawdown proceeding smoothly.
Expects growth to moderate to 2% this year.
Expects unemployment rate to hold between 4%-4.25%.
Sees move to 2% inflation over coming years.
Housing related inflation pressures are easing.
Economy has returned to balance.
Inflation expectations are anchored.
- EUR/USD edges higher on Wednesday, reaching 1.0335 as buyers attempt a comeback.
- RSI climbs to 47, signaling a sharp pickup in momentum yet still residing in negative territory.
- MACD histogram shows flat red bars, hinting that bullish traction remains tentative.
EUR/USD managed a modest rise to around 1.0335 on Wednesday, extending a cautious bid despite struggling to firmly overtake the 20-day Simple Moving Average (SMA). While the pair has garnered some support following recent declines, the rejection at this technical barrier underscores lingering doubts over the sustainability of the recovery.
From a momentum standpoint, the Relative Strength Index (RSI) has improved to 47, an indication of reviving sentiment, yet it maintains a foothold in negative territory, suggesting that buyers still face headwinds. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram prints flat red bars, reinforcing the notion that bullish forces remain far from dominant.
For now, immediate resistance aligns with the 20-day SMA near 1.0350, where a decisive break could brighten the short-term outlook and open the door toward 1.0400. On the downside, failure to defend the 1.0300 mark may see sellers resurface, potentially dragging the pair toward 1.0270 or below.
EUR/USD daily chart
Richmond Federal Reserve President Thomas Barkin remarked on Wednesday that December’s US inflation data suggests price pressures are continuing to ease. His comments came after a government report revealed that a key underlying measure of price increases had slowed during the month.
Key Quotes
Inflation is coming down towards 2% target
Says he can see paths where inflation is sticky or continues to progress towards target
Says he was encouraged by the unemployment rate in December
Seems the job market has stabilized
Not much to support arguments that the economy is growing weaker
Says he is not concerned about overheating economy right now; demand is solid but not booming
Long rates right now are consistent with early 2000s, which was not a restrictive time for business
Says he has not seen anything in long rates that would influence Fed policy at this point
Regarding incoming Trump administration's policies, the direction of travel may be clear on things like tariffs but the details are not
Businesses generally saying that price-setting behavior is moving to pre-pandemic patterns
- USD/JPY falls sharply as U.S. consumer inflation data shows slowing core inflation.
- Bank of Japan Governor's hawkish comments lift Yen; U.S. 10-year yields drop 12bps.
- Upcoming Fed speeches and U.S. economic data key for further market direction.
The USD/JPY dropped over 1% in early trading during the North American session as inflation data in the United States (US) resumed its downward trajectory in core figures. The pair trades at 156.33 at the time of writing.
US Dollar falls to 156.33 against Yen following US inflation data that showed a slowdown in core price
The US Bureau of Labor Statistics (BLS) revealed that consumer inflation rose by 0.4% Month over Month, exceeding estimates of 0.3% for an unchanged number compared to November’s reading. Annualized, the Consumer Price Index (CPI) rose 2.9% as expected, up two ticks from the previous reading of 2.7%.
Excluding volatile items, the so-called core inflation expanded by 0.2% MoM, as expected. At the same time, in the twelve months to date, it is up 3.2%, lower than the 3.3% printed in November and projected by economists.
The Yen extended its gains as the USD/JPY slipped from around 157.00 to current spot prices. Following suit, the US 10-year Treasury note yield plunged over twelve basis points (bps) to 4.661%.
Earlier during the Asian session, Bank of Japan (BoJ) Governor Kazuo Ueda was hawkish. He stated that they will hike rates and adjust the degree of monetary support if the economy improves and price conditions continue. He emphasized that Spring wage talks are crucial and noted that BoJ’s branch managers’ meeting showed an encouraging view on pay.
Later in the day, Fed speakers Thomas Barkin, Neel Kashkari, and John Williams will cross the newswires ahead of Thursday's Retail Sales and jobless claims data. The Japanese economic docket is empty for the remainder of the week.
USD/JPY Price Analysis: Technical outlook
The uptrend remains intact, yet the USD/JPY might retreat in the short term. Once sellers pushed prices below the Tenkan-sen of 157.41, that opened the door for further losses. The next key support would be the 156.00 figure, followed by the Kijun-sen at 154.94. The next support would be the 50-day Simple Moving Average (SMA) at 154.74 if cleared.
Japanese Yen PRICE Today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.22% | -0.49% | -1.03% | -0.20% | -0.72% | -0.64% | -0.19% | |
| EUR | 0.22% | -0.27% | -0.82% | 0.00% | -0.50% | -0.42% | 0.03% | |
| GBP | 0.49% | 0.27% | -0.58% | 0.29% | -0.23% | -0.15% | 0.32% | |
| JPY | 1.03% | 0.82% | 0.58% | 0.84% | 0.32% | 0.40% | 0.87% | |
| CAD | 0.20% | -0.00% | -0.29% | -0.84% | -0.52% | -0.43% | 0.02% | |
| AUD | 0.72% | 0.50% | 0.23% | -0.32% | 0.52% | 0.09% | 0.54% | |
| NZD | 0.64% | 0.42% | 0.15% | -0.40% | 0.43% | -0.09% | 0.46% | |
| CHF | 0.19% | -0.03% | -0.32% | -0.87% | -0.02% | -0.54% | -0.46% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
Conversely, if USD/JPY climbs past 157.00, it clears the path to challenge the Tenkan-sen at 157.41. On further strength, the next resistance will be the 158.00 mark.
The Euro’s (EUR) grind higher has extended above 1.03, barely, in quiet trade, Scotiabank's Chief FX Strategist Shaun Osborne notes.
EUR grinds higher
"Caution on the ECB policy outlook has helped narrow EZ/US short-term spreads—the 2Y bond spread has compressed more than 25bps over the past month or so. But ECB policy doves continue to press their views that rates are poised to fall relatively quickly (Villeroy said earlier that it made sense to cut rates to 2% by mid-year). That prospect may limit the EUR’s ability to recover in the near-term."
"Yesterday’s rise in the EUR followed a bullish “hammer” signal Monday and the combination of price action over the past three trading sessions has developed a compelling “morning star” reversal pattern on the daily candle chart."
"There is a fair amount of congestion on the charts in the low/mid 1.03 zone, however, so progress may be slow. EUR gains should pick up a little more above 1.0365. Support is 1.0250/60."
- EUR/GBP edges lower as UK gilt yields cool down after soft inflation data for December.
- Traders have raised BoE dovish bets on the back of soft inflation data.
- The ECB is expected to cut interest rates atleast three times this year.
The EUR/GBP pair edges lower to near 0.8440 in Wednesday’s North American session. Five-day rally in the cross that was built on surging yields on United Kingdom (UK) gilts appears to be losing fuel. 30-year UK gilt yields tumble from their more-than-26-year high of 5.47% to 5.38% after the release of the soft UK Consumer Price Index (CPI) report for December, which led to a recovery move in the Pound Sterling (GBP).
The UK CPI report showed that the core inflation – which excludes volatile items, such as food, energy, oil, and tobacco – grew by 3.2%, slower than estimates of 3.4% and the former reading of 3.5%. Annual headline inflation surprisingly decelerated to 2.5% from 2.6% in November. Economists expected the underlying inflation data to have accelerated to 2.7%.
Signs of cooling price pressures have prompted expectations for the Bank of England (BoE) to cut interest rates in February’s policy meeting. Markets currently see an 84% chance of the BoE cutting rates by 25 basis points (bps) on February 6, compared to a 62% chance at Tuesday's close.
Technically, cooling inflationary pressures weigh on the currency. However, the Pound Sterling rebounded as it was declining sharply for a week due to surging gilt yields. Investors were dumping government bonds as they lacked confidence in the UK economic outlook due to stubborn price pressures and a likely trade war with the United States (US), given that President-elect Donald Trump will raise import tariffs sharply. This scenario would heavily weigh on the UK’s exports.
Investors expected a sharp rise in the UK government’s borrowing costs would force the administration to cut spending heavily.
Meanwhile, the Euro (EUR) broadly underperforms on Wednesday as European Central Bank (ECB) officials are comfortable with market expectations for the central bank to deliver atleast three interest rate cuts this year. Trades have priced in a significant number of ECB interest rate cuts as the Eurozone inflation has broadly remained under control.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.00% | -0.17% | -0.61% | -0.03% | -0.14% | -0.11% | -0.08% | |
| EUR | -0.01% | -0.18% | -0.63% | -0.06% | -0.15% | -0.12% | -0.09% | |
| GBP | 0.17% | 0.18% | -0.48% | 0.14% | 0.03% | 0.05% | 0.10% | |
| JPY | 0.61% | 0.63% | 0.48% | 0.59% | 0.48% | 0.51% | 0.56% | |
| CAD | 0.03% | 0.06% | -0.14% | -0.59% | -0.11% | -0.07% | -0.03% | |
| AUD | 0.14% | 0.15% | -0.03% | -0.48% | 0.11% | 0.04% | 0.08% | |
| NZD | 0.11% | 0.12% | -0.05% | -0.51% | 0.07% | -0.04% | 0.04% | |
| CHF | 0.08% | 0.09% | -0.10% | -0.56% | 0.03% | -0.08% | -0.04% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
ECB policymaker and Governor of the Bank of France François Villeroy de Galhau said in Wednesday’s European session, "It makes sense for interest rates to reach 2% by the summer" as we have practically won the "battle against inflation".
UK markets breathed a sigh of relief after this morning’s UK inflation data, Scotiabank's Chief FX Strategist Shaun Osborne notes.
GBP is trading steady on the day
"December CPI rose 0.3% in the month and 2.5% over the year, a little below forecasts. Core and Services price measures slowed more significantly, boosting expectations that the BoE will proceed with rate cuts."
"The data brings some relief to the Gilts market after the recent turmoil. 10Y yields have eased 8bps on the day. Swaps reflect 22bps of easing priced in for the February MPC versus 16bps late yesterday. The data is a double-edged sword for the pound which has been choppy but is trading little changed on the day."
"The Pound Sterling (GBP) is not making a lot of progress but the heavy losses seen in the market last week have been halted. Monday and Tuesday’s sessions suggested firm demand on dips below 1.22 and a similar pattern is evident so far today. This may set the pound up for a minor squeeze higher. Resistance is 1.2255. Support is 1.2175."
The Canadian Dollar (CAD) is lagging its commodity peers and trading little changed on the session. Tariff risks remain a constraint on the CAD’s performance, Scotiabank's Chief FX Strategist Shaun Osborne notes.
CAD little changed
"This morning’s Manufacturing and Wholesale Sales data are unlikely to move the CAD significantly. Markets are anticipating a 0.7% drop in November Wholesale Sales, in line with the estimate Statcan provided with the October report."
"The Liberal Party leadership battle appears to be whittling down to a handful of candidates—former Finance Minister Freeland and former BoC Governor Carney, who may announce his run for leader this week. The CAD’s fair value estimate has improved to 1.4254 today."
"Firstly, solid resistance in the mid1.44 zone over the past month has blunted the USD’s bull run and trimmed bull trend momentum. Secondly, a bearish outside range session developed Monday, with losses yesterday “confirming” the signal. Thirdly, spot losses are pressuring trend support off the September low. A clear push under 1.4340 may see USD losses pick up to test key shortterm support at 1.4280."
The Japanese Yen (JPY) is leading gains amongst the majors, Scotiabank's Chief FX Strategist Shaun Osborne notes.
JPY outperforms following BoJ Governor Ueda comments
"The JPY is leading gains amongst the majors following comments from BoJ Governor Ueda who remarked that he had heard encouraging reports on wages at events over the new year period."
"Swaps reflect strengthening expectations that the BoJ will lift its policy rate at next week’s decision, with 18bps of tightening risk priced in, up from 10bps last week."
"Firm risk appetite is lifting EM/high beta FX, with the core majors outside the JPY lagging and posting only moderate gains on the session."
The US Dollar (USD) is modestly lower for a second day. US PPI came in below consensus expectations yesterday, Scotiabank's Chief FX Strategist Shaun Osborne notes.
USD edges lower as US yields dip
"This morning’s CPI data is expected to come in at up 0.4% in the December month, with core forecast to rise 0.3%. Those sorts of results would give a 2.9% increase in headline prices over the year, up for m 2.7% in November, with core prices steady at 3.3% in the year."
"While PPI was a bit softer than expected some components (domestic airfares) relevant as inputs for PCE were somewhat elevated. The devil will be in the details for the CPI report as well. US yields remain elevated but have edged back from recent peaks. Markets are also reflecting some caution about what sort of tariff regime will follow next week’s inauguration, weighing on the USD."
"Extended USD positioning and somewhat frothy USD sentiment continue to suggest—to me, at least— that the USD is prone to consolidation or a correction."
- The US Dollar extends correction from earlier elevated levels.
- All eyes are on the US CPI release while President-elect Donald Trump remains silent on the tariff schemes.
- The US Dollar Index (DXY) dips below 110.00 and might even break below 109.00 on a disinflationary CPI release.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends its correction from a two-year high above 110.00 reached on Monday and trades near 109.10 at the time of writing on Wednesday. It will be a very data-dependent day as all eyes are on the upcoming United States (US) Consumer Price Index (CPI) data for December on Wednesday after markets were caught by a surprise softer-than-expected Producer Price Index (PPI) the previous day. Because of that, expectations have swung now to the assumption the upcoming CPI numbers will be disinflationary and might see a revision of the timing when the Federal Reserve (Fed) will continue its rate cut cycle in 2025.
Thus, the US economic calendar will orbit around one thing: the US CPI for December. A look under the hood reveals estimates for the monthly headline reading ranging from 0.2% to 0.5% compared to the previous 0.3%. The monthly core reading has very tight estimates ranging between 0.2% and 0.3% compared to the 0.3% seen in November.
Given the tight expectation range for the core CPI reading, a number outside the range could be the most market-moving element. Any print below 0.2% will trigger substantial weakness in the US Dollar (USD), whereas a print above 0.3% will strengthen the USD.
Daily digest market movers: CPI on high importance
- At 13:30 GMT, the US Consumer Price Index data for December will be released.
- The monthly core CPI measure is expected to rise 0.2% compared to 0.3% the previous month. The monthly headline CPI reading is expected to increase steadily by 0.3%.
- The yearly core CPI reading should rise steadily by 3.3%, while the headline reading is expected to tick up 2.9% compared to 2.7% in November.
- At 14:00 GMT, Federal Reserve Bank of Chicago President Austan Goolsbee will discuss the economy at the Wisconsin Bankers Association 2025 Midwest Economic Forecast Forum.
- At 15:00 GMT, Minneapolis Fed President Neel Kashkari will give welcoming remarks and participate in a fireside chat with Jay Debertin, President and CEO of CHS, Inc., as part of the Minneapolis Fed’s 2025 Regional Economic Conditions Conference.
- At 16:00 GMT, Federal Reserve Bank of New York President John Williams delivers keynote remarks at the "CBIA Economic Summit and Outlook 2025" event organized by the Connecticut Business and Industry Association (CBIA) in Connecticut.
- Equities are marginally in the green on Wednesday, with traders awaiting the US CPI release.
- The CME FedWatch Tool projects a 97.3% chance that interest rates will be kept unchanged at current levels in the January meeting. Expectations are for the Federal Reserve (Fed) to remain data-dependent with uncertainties that could influence the inflation path once President-elect Donald Trump takes office on January 20.
- US yields are softening substantially. The 10-year benchmark trades around 4.774% at the time of writing on Wednesday, fading from its fresh 14-month high of 4.802% seen on Monday.
US Dollar Index Technical Analysis: Data-dependent as the Fed wants it
The US Dollar Index (DXY) has become volatile, and it has the Federal Reserve to thank. With little to no real guidance from Fed officials, markets need to treat each data point as an assessment of where they think the Fed will initiate its policy rate move this year. Jumping f