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Forex Today: New year, old Fed

What you need to take care of on Thursday, January 5:

The US Dollar changed course on Wednesday and edged sharply lower across the FX board. However, losses were uneven, with the AUD among the best performers and the EUR at the bottom of the list.

In fact, news coming from China and affecting Australia were the initial catalyst for the US Dollar sell-off. News indicated that the Chinese National Development and Reform Commission discussed plans to partially lift the ban on Australian coal imports after two years of conflict. Imports were interrupted in mid-2020 after Australia joined other nations in launching an investigation into the origins of COVID-19, triggering China's rage, which imposed bans on multiple Australian products. According to market talks, coal imports could resume as soon as April 1.

 Another factor weighing on the US Dollar came from Japan, as the Bank of Japan attempted to lower government bond yields. Governor Haruhiko Kuroda noted that policymakers would continue to ease monetary policy to achieve their inflation goal.

Global yields were down, adding pressure on the American currency, as Australian and Japanese news affected local yields while dragging lower overseas counterparts.

The International Monetary Fund (IMF) managing director said a third of the world's economies could slide into a recession in 2023.

Sentiment continues to revolve around China's economic progress. On the one hand, market players are optimistic the country will resume growth after dropping the zero-covid policy. But, on the other, many expect such recovery to be a long and bumpy road.

Mid-US afternoon,  the FOMC released the Minutes of its latest meeting. The document showed that policymakers remain concerned about inflation risks, and while they welcomed easing price pressures in October and November, they are still taking monetary policy decisions on the base of price pressures.  

Most participants noted the upside risks to inflation remain a key factor in shaping the monetary policy outlook. Some officials believe inflation risks could be more persistent, while a couple of officials think the risks are more balanced. Finally, there are no hints on how much Fed officials intend to raise interest rates at their next meeting.

The news pushed stocks off their intraday highs and fueled speculation that US officials will remain on the aggressive tightening path.

EUR/USD struggles to retain the 1.0600 threshold at the end of the day, as the shared currency remains among the weakest USD rivals.

The GBP/USD pair returned to its comfort zone at around 1.2050, little changed on a weekly basis. Concerns about a UK recession undermined demand for the British Pound amid negative real GDP.

Commodity-linked currencies led the way against the greenback, with the AUD rallying over 150 pips. AUD/USD now trades at around  0.6830, weighed by easing Wall Street. The USD/CAD, on the other hand, trades at around 1.3500, not far from an intraday low of 1.3476.

The USD/JPY pair advanced roughly 200 pips during US trading hours to end the day at around 132.60. The pair soared after a poor US ISM Manufacturing PMI and as US government bond yields jumped north.

Crude oil prices kept falling on Wednesday amid concerns about Chinese demand. WTI tumbled at trades at $72.90 a barrel. On the one hand, the commodity was affected by fears of reduced Chinese demand, later declining on the back of easing US indexes.

Gold trades at around $1,851 after hitting a fresh six-month high of $1,865.12

US Treasury yields eased, with the 10-year note currently hovering at around 3.70%, down 8 bps on the day, and the 2-year note offering 4.38%, down 2 bps.

UK National Crime Agency prepares to tackle fraud with new crypto unit


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Valeria Bednarik

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.

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