The US Dollar struggles to stay resilient against its rivals early Thursday as the US Dollar Index remains in negative territory below 102.00 following Wednesday’s slide. Throughout the first half of the day, the market action will likely be driven by risk perception as there will be no high-quality data released on the European economic docket. In the early American session, a fresh impetus will be sought from December Durable Goods Orders, Weekly Initial Jobless Claims, and December New Home Sales data. Additionally, the Bureau of Economic Analysis will release the first estimate of the fourth-quarter growth in Gross Domestic Product (GDP).
The Bank of Canada (BoC) has decided to pause and perhaps end its tightening cycle, which is what has contributed to modest dollar weakness over the past 24 hours. As investors wondered if the Fed would adopt a similar position – perhaps at the 22 March FOMC meeting – yields ticked modestly lower and weighed on the dollar. The Fed will hike by 25 bps next week.
As the Fed eases and the dollar weakens, this could stimulate growth in the Rest of the World (RoW), and the re-weighting of portfolios to RoW assets is expected to remain a key story in 2023.
This week’s data focus is on US 4Q GDP, which is slightly below consensus due to lower imports and inventory building rather than ‘good’ growth. In addition, we will see the December advanced goods trade balance, which is expected to continue to widen. The volatile durable goods orders for December will also be discussed as well as the weekly initial jobless claims, which have not shown signs of easing labor market supply pressures as of yet.
Despite the BOC’s ‘conditional pause’ in policy tightening, the benchmark 10-year US Treasury bond yield stayed below 3.5%, preventing the US Dollar from strengthening against its major rivals. After opening in the red, the main indexes of Wall Street closed little changed. US stock index futures are modestly up in the morning European session.
EUR/USD
Despite the widespread weakness of the US Dollar, this currency pair climbed above 1.0900 on Thursday before entering a consolidation period. Since the ECB’s quiet period begins today, ECB policymakers are unlikely to comment on the policy outlook ahead of next week’s meeting.
GBP/USD
On Wednesday, the pair snapped a two-day losing streak. It traded modestly higher on the day, a few pips above 1.2400.
USD/JPY
It continued to decline toward 129.00 early Thursday under modest bearish pressure. In the Summary of Opinions released by the Bank of Japan (BOJ) during Asian trading hours, policymakers agreed that the BOJ should keep yields from rising across the curve while balancing the bond market function.
Gold
The gold price registered gains for the third straight day last Wednesday as US T-bond yields declined. XAU/USD reached close to $1,950 in the Asian session before retreating slightly.
The bitcoin price rose toward $24,000 after Tuesday’s downward correction but later wiped out a portion of its daily gains in the late American session as bullish momentum reemerged. BTC/USD was trading slightly above $23,000 at the time of writing. ETH/USD moved sideways at around $1,600 after rising nearly 4% on Wednesday and retracing the majority of Tuesday’s decline. As the US Advance GDP data is released, markets expect it to increase by 2.6% annually. As markets fear a recession in the United States, significantly worse data could cause market volatility, especially in the US stock market, which would likely fall rapidly.
