Forex Today: US Dollar finds demand, as geopolitics and inflation take center stage

Source Fxstreet

Here is what you need to know on Tuesday, January 16:

Risk aversion remains the main underlying theme so far this Tuesday, as investors assess the timing and pace of US Federal Reserve (Fed) interest rate cuts amid the escalation of geopolitical tensions in the Middle East.

Markets continue pricing in a 70% probability of a 25 basis points (bps) Fed rate cut in March, versus 63% a week earlier, according to the CME Group’s FedWatch Tool. Traders are once again projecting cuts of 160 bps this year, up from expectations of 140 bps last week.

Aggressive Fed rate cut bets stand ahead of the eagerly awaited speech by Fed Governor Christopher Waller at 16:00 GMT on Wednesday. Waller flagged a dovish policy pivot late last year, driving stocks higher at the expense of the US Dollar (USD).

On the geopolitical front, Iran’s Islamic Revolutionary Guard Corps (IRGC) fired missiles at targets near the US Consulate in Erbil, Iraq. Iranians retaliated against the terrorist attacks this month that killed almost 100 people near the burial site of General Qassem Soleimani. Amidst intensifying tensions in the Red Sea, Iran-backed Houthi rebels have struck a US-owned cargo vessel with an anti-ship ballistic missile off the coast of Yemen.

This comes after US fighter aircraft intercepted and destroyed an anti-ship cruise missile launched by Houthi rebels in Yemen towards the USS Laboon destroyer in the Red Sea. Iran's Foreign Minister, Hossein Amir-Abdollahian, warns the US and Britain to immediately cease the Yemen war, condemning recent strikes on Houthi rebels as arbitrary and a violation of international law. 

Markets also remain on edge ahead of the top-tier Gross Domestic Product (GDP) report and activity data from China, scurrying for safety in the US Dollar. Additionally, investors digest the US political developments in the run-up to the November 5 Presidential election. Donald Trump won the Iowa caucuses, strengthening his status as the front-runner in the Republican primary.

Meanwhile, a barometer of risk sentiment, US S&P 500 futures, is losing 0.33% on the day while the US Dollar Index is up 0.51% near 103.00, at the press time.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.25% 0.26% 0.29% 0.51% 0.24% 0.37% 0.38%
EUR -0.25%   0.02% 0.06% 0.27% -0.01% 0.12% 0.14%
GBP -0.27% -0.03%   0.02% 0.25% -0.04% 0.08% 0.11%
CAD -0.30% -0.05% -0.03%   0.21% -0.07% 0.07% 0.08%
AUD -0.51% -0.26% -0.23% -0.22%   -0.28% -0.14% -0.13%
JPY -0.23% 0.02% 0.04% 0.05% 0.27%   0.14% 0.13%
NZD -0.37% -0.11% -0.08% -0.07% 0.15% -0.13%   -0.02%
CHF -0.36% -0.13% -0.09% -0.07% 0.14% -0.14% -0.01%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Across the FX board, the Antipodeans are the main laggards due to risk-averse market conditions. AUD/USD is falling hard to near 0.6600 while the NZD/USD has lost nearly half a percent to trade at around 0.6170. The risk-sensitive currencies ignored regional sentiment data.  

USD/JPY extends its latest upbeat momentum above 146.00, tracking the uptick in the US Treasury bond yields. 

EUR/USD is keeping the red below 1.0950, despite the latest hawkish chorus by the European Central Bank’s (ECB) policymakers. Germany’s preliminary Real GDP for 2023 contracted at an annual pace of 0.3%, as widely expected. Germany’s ZEW sentiment survey is next in focus.

GBP/USD is losing ground below 1.2700, awaiting the key UK labor market report. All eyes will be on the wage inflation data ahead of Wednesday’s CPI release.  

USD/CAD is holding higher ground near 1.3480 as the WTI oil price rally fizzles. The geopolitical developments surrounding the Red Sea will continue to grab attention. CAD traders will also closely scrutinize the Canadian CPI report. 

Gold price is sticking to lows near $2,050, pressured by resurgent US Dollar demand and surging US Treasury bond yields. The benchmark 10-year US Treasury bond yields are 1.40% higher on the day at 4.003%.  

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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