The US Dollar (USD) lost its earlier momentum on Tuesday as risk flows took center stage in the financial markets. Despite a rebound in the European trading hours, the USD Index struggled to maintain strength in the second half of the day, with stock market optimism weighing on the greenback. As of early Wednesday, the USD Index remained relatively stable, holding modest daily gains just above 108.00, though the market sentiment remains cautious in the absence of high-tier economic data.
Trump’s Tariff Threats Impact Market Sentiment
US President Donald Trump’s tariff threats on Mexico and Canada provided initial support for the USD on Tuesday, with safe-haven flows driving the greenback higher against its rivals. However, Trump’s late statement that he was considering imposing a 10% tariff on Chinese imports, in connection with fentanyl trade via Canada and Mexico, added further uncertainty to the outlook. Despite this, the bullish momentum in US equities, which saw major indexes open positively, made it difficult for the USD to sustain its outperformance throughout the US session.
Economic Data and Global Currencies
The economic calendar on Wednesday is relatively quiet, with no high-impact data releases expected. However, market participants are watching the latest economic figures from other regions:
- New Zealand: New Zealand’s Consumer Price Index (CPI) rose by 2.2% year-over-year in Q4 2024, matching the previous quarter’s increase but exceeding the expected 2.1%. The NZD/USD continues to experience moderate bearish pressure, trading near 0.5650 as markets digest the inflation data.
- Canada: Statistics Canada reported that annual inflation, measured by CPI, edged lower to 1.8% in December from 1.9% in November. On a monthly basis, CPI declined by 0.4%. Following this data release, USD/CAD has stabilized around 1.4350.
- Eurozone: EUR/USD managed a modest rebound on Tuesday after a downward correction, consolidating its weekly gains at around the 1.0400 mark. Investors will be focusing on European Central Bank (ECB) President Christine Lagarde’s speech later on Wednesday at the World Economic Forum in Davos, which may provide further direction for the Euro.
- GBP: GBP/USD showed small gains on Tuesday but dipped slightly in the European trading hours on Wednesday. However, it remains above the key support level of 1.2300.
Gold and USD/JPY: Safe-Haven Assets in Focus
Gold: XAU/USD gained more than 1% on Tuesday, touching its highest level since early November near $2,760. However, the precious metal retreated slightly in the Asian session on Wednesday, with current trading near $2,750. The safe-haven demand remains supported by concerns over US tariffs, though gold’s rally faces some resistance.
USD/JPY: USD/JPY extended its sideways movement just below the 156.00 level on Wednesday. Investors are hesitant to take large positions ahead of the Bank of Japan’s monetary policy meeting on Friday. A potential rate hike could influence the Yen’s trajectory in the near term.
Market Outlook
With no major economic releases expected for the rest of the day, market participants are focused on political developments, particularly regarding Trump’s tariff proposals, and ECB President Lagarde’s speech. Investors will also keep an eye on upcoming data and central bank decisions, including the Bank of Japan’s meeting later this week, which could provide further direction for USD/JPY and other major currency pairs.
Related topics:
Fidelity Launches Multi-Asset Fund in China to Tap Growing Retirement Market
Dollar Slips as U.S. Inflation Eases and Yen Rises on Rate Hike Bets
