Forex Today: Fed Powell put the dollar in sell-off mode ahead of US inflation data

Valeria Bednarik FXStreet

What you need to know on Tuesday, January 12:

The dollar fell sharply on Tuesday, following comments from US Federal Reserve chief Jerome Powell. In the hearings before the Senate amid his nomination for a second term, the leader of the US central bank mixed a hawkish view of the economy with a cautious approach to the reduction of the balance sheet.

Powell noted that the economy is growing at its fastest rate in years, while the labour market is "robust." Also, he said the Fed would stop higher inflation from getting entrenched, cooling down the market's concerns. At the same time, he said that the balance sheet runoff could happen "perhaps later in the year," cooling expectations for an aggressive tapering.

Meanwhile, US Fed Vice-Chair Richard Clarida stepped down on Monday after failing to report stocks' trading just a few days before the Fed announced emergency financial measures to shore up markets in the middle of the coronavirus pandemic. Fed vice-chair said his failure to report those trades was the result of "inadvertent errors."

Wall Street advanced on relief, with the three major indexes holding on to gains ahead of the close. US government bond yields eased as the yield on the 10-year Treasury note retreated to 1.75%.

The EUR/USD pair advanced to 1.1374, holding nearby as the day comes to an end, while GBP/USD trades at 1.3625, its highest since November.

Safe-haven currencies advanced modestly against the greenback, with USD/JPY now trading at 115.40. Commodity-linked currencies strengthened, with AUD/USD trading at 0.7210 and USD/CAD down to 1.2570.

Gold is up to $1,820 a troy ounce, while crude oil prices also got a boost from a weaker dollar, with WTI currently trading at $81.40 a barrel.

The focus now shifts to US inflation figures. The country will publish on Wednesday the December Consumer Price Index, foreseen at 7% YoY.

Top 3 Price Prediction Bitcoin, Ethereum, XRP: Majority of crypto market to experience relief rally

Like this article? Help us with some feedback by answering this survey:

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

EUR/USD flirts with weekly lows near 1.1770

EUR/USD now comes under further selling pressure, breaking below the 1.1800 support to challenge the area of weekly throughs near 1.1770 on Thursday. The pair’s decline comes in response to marked gains in the US Dollar amid steady geopolitical tensions. Ealier in the day, the ECB’s Lagarde delivered cautious remarks, although the currency remained apathetic.

GBP/USD threatens the 200-day SMA near 1.3440

GBP/USD rapidly leaves behind Wednesday’s strong advance, coming under heavy pressure and retesting the 1.3440 zone, where the critical 200-day SMA is located. Cable’s deep pullback follows the strong gains in the Greenback, while investors continue to pencil in a potential BoE rate cut in March.

Gold trims gains, slips back to around $5,170

Gold is now facing some downside pressure, hovering around the $5,170 region on Thursday. The yellow metal surrenders part of its earlier gains on the back of the resurgence of the buying interest in the Greenback. In the meantime, geopolitical tensions in the Middle East continue to limit the downside potential for now.