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Forex Today: Dollar consolidates Fed-inspired gains, eyes on EU inflation, US NFP data

Here is what you need to know on Friday, January 7:

After outperforming its rivals early Thursday on the FOMC's hawkish tilt, the dollar seems to have gone into a consolidation phase on Friday as investors gear up for the US December jobs report. The market expectation points to an increase of 400,000 in US Nonfarm Payrolls and a decline to 4.1% in annual wage inflation from 4.8% in November. The European docket will offer preliminary December Consumer Price Index, Retail Sales and business sentiment data for the euro area. Statistics Canada will also release December unemployment figures in the early American session.

Nonfarm Payrolls Preview: A strengthening labor market backs a tighter monetary policy.

Following the sharp drop witnessed on Wednesday, Wall Street's main indexes closed modestly lower on Thursday and the benchmark 10-year US Treasury bond yield moved sideways below 1.75%. After the Fed's December policy meeting minutes showed that policymakers saw it appropriate to start running off the balance sheet following the first rate hike, the market pricing of a March hike jumped above 70% before retreating to 63% early Friday. The US Dollar Index is moving sideways above 96.20, reflecting a neutral tone. In the meantime, US stocks futures indexes trade little changed on the day so far.

An interest rate Love Story: Being Jerome Powell means never having to say you're sorry?

EUR/USD closed in the negative territory but seems to be having a difficult time pulling away from the 1.1300 handle. Core CPI inflation in the euro area is expected to edge lower to 2.5% on a yearly basis in December from 2.6% in November. A stronger-than-expected print could help the shared currency stay resilient against its rivals and vice versa.

USD/CAD edged lower despite broad-based USD strength on Thursday as the surging crude oil prices helped the commodity-sensitive loonie find demand. Ahead of key data releases, the pair is trading within a touching distance of 1.2700.

Canadian Jobs Preview: Slowdown in jobs growth could worsen CAD’s plight.

GBP/USD tested 1.3500 early Thursday before recovering toward mid.13500s. There won't be any high-tier data releases from the UK and the dollar's market valuation is likely to continue to drive the pair's action ahead of the weekend.

USD/JPY seems to have steadied around 116.00 following Thursday's downward correction. Another leg higher in US T-bond yields could provide a boost to the pair.

Gold suffered heavy losses on Thursday and closed below $1,800. The pair seems to have broken below the uptrend that started mid-December. XAU/USD stays fragile due to its strong inverse correlation with US T-bond yields.

Bitcoin closed the fifth straight day in the negative territory and continues to edge lower toward $40,000. Ethereum is trading at its lowest level since early October and closes in on $3,000.

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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