Dollar came back roaring on rate cut jitters

As US markets returned to their daily routine, investors’ declining speculation on interest rate cuts by the Fed lent strong support to the Greenback, while ECB officials also remained at odds with markets’ perceptions of the timing of interest rate reductions, eventually weighing on the European currency. Markets’ attention is expected to remain on US Retail Sales, Fedspeak, and Lagarde’s speech at the WEF.

Here is what you need to know on Wednesday, January 17:

The demand for the US Dollar gathered extra pace on Tuesday and lifted the USD Index (DXY) to new YTD peaks well past the 103.00 mark along with a similar advance in US yields, all in response to further repricing of the Fed’s timing of interest rate reduction. Next of relevance in the US data space will be December Retail Sales, Industrial Production and the Fed’s Beige Book. In addition, FOMC Barr, Bowman, Woods, and Williams will speak.   

EUR/USD accelerated its losses and collapsed to the sub-1.0900 region, printing new 2024 lows near 1.0860 amidst the strong resurgence of demand for the greenback. In the domestic calendar, the final December Inflation Rate is due along with the speech of ECB President C. Lagarde at the WEF in Davos.

GBP/USD maintained its bearish performance well in place and dropped to the vicinity of the 1.2600 neighbourhood as the dollar’s strength continued to weigh on the risk complex. The general positive tone from the UK labour market report failed to ignite any reaction in the British pound. On Wednesday, all the attention across the Channel will be on the publication of the Inflation Rate for the month of December.

USD/JPY extended its bounce past the 147.00 barrier and recorded a new YTD peak against the backdrop of the sharp improvement in the Dollar and rising US yields across the curve. The release of the Reuters Tankan Index will be in the limelight on Wednesday.

AUD/USD dropped for the fourth session in a row and put the 200-day SMA to the test around the 0.6580 zone as the sentiment around the high-beta currency remained sour. Absent data releases in Oz on Wednesday, AUD should closely follow the Chinese docket, which includes the Q4 GDP Growth Rate, Industrial Production, Retail Sales, and the House Price Index, among others.  

Both Gold and Silver navigated a “sea of red” on the back of strong gains in the greenback and the move higher in US yields.