Dollar’s rally falters near 103.70

Further reduction of bets on an interest rate cut by the Fed in March propelled the USD Index (DXY) to a new yearly high and aligned with the extra narrative suggesting the ECB could wait until the summer to trim its rates, which eventually appears to have bolstered the late bounce in the single currency. By the same token, higher-than-expected UK inflation figures seem to have lent support to the view of a steady hand by the BoE in the next few months.

Here is what you need to know on Thursday, January 18:

The Greenback gathered extra pace on Wednesday and pushed the USD Index (DXY) to new 2024 peaks near 103.70 against the backdrop of further gains in US yields across different maturities. The resilience of the US economy will be put to the test on Thursday with the releases of Housing Starts, Building Permits, usual weekly Initial Claims and the always-relevant Philly Fed Manufacturing Index.

EUR/USD dropped to new multi-week lows near 1.0840 band on the back of persistent strength in the greenback, while ECB officials continued to pour cold water over expectations of interest rate cuts by the bank in H1 2024. Moving forward, the ECB will release its Accounts of the latest meeting, while President Lagarde is due to speak at the WEF in Davos.

Despite the dollar’s dominance, the British pound managed to derive support from higher-than-expected UK inflation figures in December, which in turn helped GBP/USD chart decent gains at the end of the day. There will be no data releases across the Channel on Thursday.

The needle-like march north in USD/JPY surpassed the 148.00 barrier amidst the continuation of the upside momentum in the greenback in combination with another firm session in US yields across the board. On Thursday, Machinery Orders and final Industrial Production readings, coupled with weekly Foreign Bond Investment should keep traders entertained early in Asia.

There was no respite for the selling pressure around the Aussie dollar on Wednesday. That said, AUD/USD sank to fresh six-week lows near 0.6520 in response to usual dollar dynamics and discouraging results from the Chinese docket. Next of note in Australia is the labour market report for the month of December.

The intense move higher in the dollar, coupled with rising US yields across the curve, weighed further on both Gold and Silver. The sentiment around the latter further deteriorated in the wake of Chinese data releases.

Prices of the WTI rose past the $72.00 mark per barrel and partially reversed the recent weakness on the back of an upbeat report from the OPEC despite the poor prints from China and the stronger dollar. Traders’ focus will be on the release of the usual weekly report on US crude oil inventories by the EIA.