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Forex Today: US Dollar struggles to recover despite cautious market mood

Here is what you need to know on Monday, January 23:

The US Dollar started the new week under modest bearish pressure and the US Dollar Index declined below 102.00 during the Asian trading hours on Monday. The market mood seems to have turned cautious with the US stock index futures trading modestly lower on the day, while the benchmark 10-year US Treasury bond yield stays slightly below 3.5% following Friday's decisive rebound. Later in the session, Germany's Bundesbank will publish its monthly report and the European Commission will release the preliminary Consumer Confidence Index for the Euro area. The US economic docket will feature the Federal Reserve Bank of Chicago's National Activity Index for December.

Nevertheless, market action remains relatively subdued amid thin trading volumes on the Chinese New Year Holiday. In the Asian session, the Bank of Japan (BoJ) released the minutes of its December monetary policy meeting. According to the publication, some members noted that the BoJ must reiterate and clearly explain that the widening of the yield band was not a move eyeing an exit from the ultra-loose policy. USD/JPY, which registered gains last week, extended its rebound and was last seen trading in positive territory at around 130.00.

As the 10-year US Treasury bond yield gained nearly 3% on Friday, Gold price struggled to preserve its bullish momentum ahead of the weekend. After having touched a multi-month high of $1,937, XAU/USD ended up closing modestly lower on Friday. At the time of press, the pair was moving up and down in a tight range above $1,920.

EUR/USD gained traction to start the week and touched its highest level since mid-April above 1.0900 before retreating modestly in the early European morning. Over the weekend, European Central Bank (ECB) Governing Council member and Governor of Austria's central bank Olli Rehn said he sees grounds for "significant interest rate increases" from the ECB this winter and the coming spring. Meanwhile, the findings of a recently conducted Reuters poll showed that the ECB is forecast to opt for a 50 basis points (bps) hike at its February monetary policy meeting, while the policy rate is expected to reach 3.25% by mid-year.

GBP/USD climbed toward 1.2450 during the Asian trading hours on Monday but erased a large portion of its daily gains, pulling back toward 1.2400. In the absence of high-impact data releases, risk sentiment and the US Dollar's valuation could continue to drive the pair's action. 

In the early session on Tuesday, S&P Global will release the preliminary Manufacturing and Services PMI reports for Australia. Following last week's volatile action, AUD/USD trades slightly below 0.7000 early Monday.

USD/CAD fell sharply on Friday and closed the week below 1.3400. The pair stays quiet at around 1.3380 in the European morning. Statistics Canada will release the New Housing Price Index data for December later in the session, which is expected to come in at -0.2%.

Bitcoin climbed above $23,000 for the first time since August on Saturday but struggled to gather further bullish momentum. BTC/USD seems to have gone into a consolidation phase below $23,000 early Monday following Sunday's choppy action. Ethereum gained nearly 5% last week and registered gains for the fifth straight week. ETH/USD holds steady slightly above $1,600 to begin the week. 

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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