Asset Summary – Friday, 23 January
US DOLLAR faces a potentially weakening outlook as the dollar index is on track for a weekly loss amidst volatile geopolitical developments and shifting investor sentiment. Threats of tariffs, a potentially complex agreement with NATO involving mineral rights and missile systems, and concerns about Europe leveraging US asset holdings, exemplified by a Danish pension fund exiting Treasury positions, contribute to market uncertainty. The Federal Reserve’s expected decision to hold interest rates steady next week adds another layer to the dollar’s performance. With declines particularly noticeable against the euro and antipodean currencies, the dollar’s position remains vulnerable as traders monitor upcoming economic data, specifically the US S&P Global Purchasing Managers Index (PMI).
BRITISH POUND is experiencing upward momentum, driven by a confluence of factors that reduce the likelihood of near-term interest rate cuts by the Bank of England. Hawkish comments from policymakers, coupled with surprisingly strong economic data, including robust retail sales, and a surge in private sector activity, have bolstered confidence in the UK economy. Specifically, stronger-than-expected PMI figures for both manufacturing and services suggest continued economic expansion. The increase in retail sales indicates resilient consumer spending. This improved economic outlook has led to a reduction in expectations for imminent monetary easing, supporting the pound’s value against other currencies, most notably pushing GBP/USD to multi-week highs. Easing trade tensions between the US and Europe further contribute to a positive environment.
EURO is experiencing mixed signals, contributing to its hovering around the $1.175 level. While the Eurozone’s private sector activity shows expansion, the pace is slightly below expectations, with stronger German growth offset by contraction in French business activity. Geopolitical factors, particularly those involving US trade policy and discussions around Greenland, add uncertainty. A weaker dollar, driven by easing US-EU tensions and slightly weaker US data, initially supported the Euro. However, the Euro faces potential headwinds if US PMIs weaken, leading to a risk-averse market and a stronger dollar, which could push the EUR/USD pair lower.
JAPANESE YEN is facing a complex situation as the Bank of Japan maintains its current monetary policy, while hinting at potential future rate hikes based on economic and price developments. This ambiguity, combined with concerns over fiscal policy stemming from a snap election called by the Prime Minister, creates downward pressure on the Yen. Despite the BOJ holding its policy rate at 0.75%, which is the highest level since 1995, the currency’s value is sensitive to any indication that the central bank might refrain from further tightening. The Yen’s weakness could be exacerbated if Governor Ueda’s stance on monetary tightening remains unclear, especially amidst rising fiscal concerns. Conversely, the US Dollar’s strength, potentially bolstered by positive US economic data, further complicates the outlook for the Japanese currency.
CANADIAN DOLLAR faces mixed signals, creating uncertainty in its near-term valuation. Higher-than-expected headline inflation in Canada supports the currency by suggesting the Bank of Canada may be hesitant to cut interest rates aggressively. However, softening core inflation could temper this effect. Simultaneously, rising oil prices provide a boost to the Canadian Dollar through export revenues and a stable trade outlook. Any weakness in the US dollar, as seen recently due to trade tensions, can further strengthen the loonie. A stabilizing global environment, with reduced trade tensions between the US and Europe, offers additional support, although the impact will likely depend on the specifics of any agreements reached.
AUSTRALIAN DOLLAR is exhibiting bullish momentum, fueled by robust domestic economic data. Strong employment figures, along with expansionary PMI readings, are bolstering expectations of near-term interest rate hikes by the Reserve Bank of Australia. Swaps markets are increasingly pricing in the likelihood of rate increases, further supporting the currency. Inflation data remains a key focus, as it is a primary driver of RBA policy decisions. A weaker US Dollar, influenced by global risk sentiment, also contributes to the AUD’s upward trajectory, while developments in China, a major trading partner, and RBA policy decisions will continue to significantly impact its value.
DOW JONES is exhibiting a mixed outlook. While futures indicated a decline of nearly 150 points, suggesting potential downward pressure at the market’s open, the index is essentially unchanged on the week. This resilience contrasts with the S&P 500 and Nasdaq, which are both poised for their second consecutive week of losses. Individual stock movements, such as Intel’s significant drop and gains in Nvidia and AMD, illustrate the complex factors influencing the market, potentially creating offsetting forces on the Dow Jones. Overall, the Dow Jones appears relatively stable compared to broader market trends, but remains subject to sector-specific volatility.
FTSE 100 experienced mixed trading, concluding the week with a slight decrease. Gains in oil and gas sectors, boosted by rising crude prices, and strong performance from gold mining companies due to record high bullion prices, provided upward pressure. Defence stocks also contributed positively amid expectations of increased defense spending. Furthermore, better-than-expected retail sales figures lent support from consumer-related stocks. However, losses in companies like Babcock, triggered by news of a CEO change, partially offset these gains, ultimately leading to a near-flat trading day.
DAX is exhibiting mixed signals as it navigates a complex environment. While positive German PMI data indicates stronger domestic private-sector activity, and some defense and energy companies are performing well, broader geopolitical uncertainties and US administration decisions are creating caution among investors. Specifically, BASF’s disappointing earnings are weighing on the index, contributing to a potential weekly decline. The market appears to be balancing these positive domestic indicators with external pressures and individual company performance, making for a potentially volatile trading period.
NIKKEI is demonstrating positive momentum, fueled by the Bank of Japan’s decision to maintain its policy rate, which signals stability. The central bank’s forward guidance on potential rate hikes, contingent on economic and price trends, suggests a measured approach to monetary policy. Market optimism is further boosted by anticipation of increased fiscal spending following a potential snap election. Gains in major companies like Advantest, Nintendo, and Toyota Motor underscore the positive sentiment. External factors, such as Wall Street’s performance driven by the US President’s tariff adjustments, also contribute to the upward trend.
GOLD is exhibiting bullish momentum, driven by a combination of factors including fading confidence in US assets, persistent geopolitical tensions, broader economic uncertainty, and expectations of further policy easing by the US Federal Reserve. Despite a recent pullback from a record high near $4,970, the precious metal is poised for its best weekly performance since March 2020. While some investors are taking profits after the surge, the market’s focus is shifting toward the $5,000 level. Dovish Fed bets are overshadowing positive US economic data, contributing to a weaker US Dollar and further supporting gold’s upward trajectory. Even though short-term charts indicate overbought conditions, the path of least resistance appears to remain to the upside.
OIL is experiencing upward pressure as geopolitical tensions in the Middle East, specifically involving the US and Iran, raise concerns about potential disruptions to oil supplies. The presence of a US naval armada near Iran is fueling these anxieties. Further supporting price increases are supply disruptions in Kazakhstan. A weaker dollar is also contributing to higher prices by making oil more affordable for international buyers. However, the outlook remains tempered by projections of significant oversupply, which could limit further price appreciation.