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Forex Today: US Dollar struggles to capitalize on upbeat data ahead of PCE inflation

Here is what you need to know on Friday, January 27:

The US Dollar Index managed to post small daily gains on Thursday following the robust macroeconomic data releases from the US but seems to be struggling to gather further bullish momentum early Friday. The benchmark 10-year US Treasury bond yield holds steady above 3.5% and US stock index futures trade modestly lower on the day after having rallied on Thursday. Ahead of the weekend, the Personal Consumption Expenditures (PCE) Price Index data from the US will be watched closely by market participants. Personal Spending and Personal Income figures for December will also be featured in the US economic docket alongside Pending Home Sales and the University of Michigan's Consumer Sentiment Index (final) for January.

US December PCE Inflation Preview: Is there room for further US Dollar weakness?

The US Bureau of Economic Analysis reported on Thursday that the US economy grew at an annual rate of 2.9% in the fourth quarter. Although this reading came in weaker than the 3.2% expansion recorded in the previous quarter, it surpassed the market expectation of 2.6%. Other data from the US revealed that the weekly Initial Jobless Claims declined to 186K from 192K and Durable Goods Orders increased by 5.6% in December, compared to analysts' estimate of 2.5%. These upbeat numbers, however, had little to no impact on the market pricing of the Fed's rate outlook. According to the CME Group FedWatch Tool, there is still a nearly 70% chance that the Fed will stay on hold after hiking the policy rate by 25 basis points in February and March.

EUR/USD snapped a fix-day winning streak on Thursday and edged slightly lower early Friday. The pair was last seen trading at around 1.0870. European Central Bank (ECB) President Christine Lagarde is scheduled to deliver a speech at 1030 GMT but she is unlikely to comment on the policy since the 'quiet period' has already started.

GBP/USD came under modest bearish pressure and during the Asian trading hours and dropped below 1.2400 after having closed virtually unchanged on Thursday. Reuters reported that British Treasury Secretary Jeremy Hunt will say on Friday that he will tackle the country's weak productivity growth, including by using post-Brexit finance reforms to drive more investment into the economy.

USD/JPY managed to stage a rebound and was last seen trading little changed on the day slightly above 130.00. Japanese Prime Minister (PM) Fumio Kishida said in an appearance on Friday that he acknowledged the Bank of Japan’s (BoJ) December policy decision was an operational tweak to enhance and sustain monetary easing effects smoothly. This comment, however, doesn't seem to be having a significant impact on the Japanese Yen's valuation. Earlier in the day, the data from Japan showed that the Tokyo Consumer Price Index rose to 4.4% on a yearly basis in January from 4% in December as expected.

Gold price turned south amid rising US Treasury bond yields and erased a large portion of its weekly gains on Thursday. At the time of press, XAU/USD was seen trading modestly lower on a daily basis slightly above $1,920.

Bitcoin seems to have gone into a consolidation phase at around $23,000 following Wednesday's decisive upsurge. Ethereum lost nearly 1% on Thursday and continued to stretch lower early Friday. ETH/USD was last seen losing more than 1% on the day at $1,580.

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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