Forex Today: Dollar takes a breather ahead of mid-tier economic data, Fedpseak

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

Escalating geopolitical tensions in the Middle East coupled with China’s economic concerns continue to keep markets jittery. China’s stock market extended its downtrend and hit a four-year low, as the country’s Premier Li Qiang said in Davos on Wednesday that dashed hopes of big stimulus coming through to support the dwindling economic recovery.

Further, US Federal Reserve (Fed) Governor Christopher Waller’s comments-led reduced bets for aggressive rate cuts also added to the investors’ pain, as markets reassess the expectations for the Fed policy pivot this year. Strong US Retail Sales data also supported the less dovish Fed view. Retail sales in the US increased 0.6% last month, exceeding the market forecast for a 0.4% rise.

Meanwhile, recent hawkish comments from the European Central Bank (ECB) officials dashed hopes of a rate cut as early as April. ECB President Christine Lagarde signaled a likely rate cut in the summer.

After late Tuesday’s strikes by the US military in Yemen against the anti-ship ballistic missiles in a Houthi-controlled part of the country, Houthi rebels targeted a US-owned cargo ship with a kamikaze drone in the Red Sea on Wednesday after Washington said it would re-designate the Houthis to its list of “specially designated global terrorists,” per BBC News.

The US Dollar (USD) sees a decent pullback from five-week tops near 103.70 against its major rivals, shrugging off encouraging US economic data and the cautious market mood. The Greenback feels the heat from sluggish US Treasury bond yields, with the benchmark 10-year US Treasury bond yields on the defensive just above the 4.0% level.

Markets now eagerly await the mid-tier US Jobless Claims, Housing Starts and Building Permits data for a fresh take on the pricing of the Fed rate cut expectations. Also, Atlanta Federal Reserve (Fed) President Raphael Bostic will be closely scrutinized later in American trading.

Moving onto the G10 FX space, AUD/USD is back on the bid above 0.6550, having reversed the downbeat Australian employment data-led dip to 0.6525. The Australian Bureau of Statistics (ABS) showed that the number of Australians in employment fell by 65,100 in December. The Unemployment Rate held steady at 3.9% due to a slump in the proportion of people in work or looking for it, ABC News reported. NZD/USD tracked the AUD/USD rebound and jumped off the 0.6100 barrier, posting small gains so far.

USD/JPY is correcting alongside the US Dollar, struggling below 148.00. The pair remains pressured, despite expectations that the Bank of Japan (BoJ) is unlikely to adjust its monetary policy settings next week.  

EUR/USD is flirting with 1.0900, holding the upswing amid the pushback by the European Central Bank’s (ECB) policymakers against interest rates cuts and a broadly weaker US Dollar. ECB Minutes and the second appearance of President Lagarde in Davos will provide some fresh trading incentives.

GBP/USD is better off and holding firm at around 1.2700, underpinned by the hot UK inflation data, which helped diminish the odds for a BoE rate cut in the first half of this year.

USD/CAD remains depressed below 1.3500, as the WTI oil looks to build on the previous rebound above $73. The geopolitical developments between the US and the Iran-back Houthi rebels will likely remain in play.

Gold price is attempting a bounce from five-week troughs of $2,002 but it remains to be seen if the recovery lasts amid bearish technicals.