Asset Summary – Monday, 12 January
US DOLLAR is facing downward pressure due to a combination of factors. A criminal investigation into the Federal Reserve Chair has raised concerns about the central bank’s independence, potentially undermining its ability to set monetary policy based on economic conditions. Weaker-than-expected job growth figures have also increased expectations for further Federal Reserve rate cuts, which could further diminish the dollar’s appeal. Heightened geopolitical risks in Iran and South America are adding to the uncertainty. The Dollar Index has fallen below 99.00 and is testing the 50-day EMA support, suggesting weakening momentum. Investors are closely monitoring upcoming inflation data and bank earnings for further direction.
BRITISH POUND is experiencing upward pressure against the dollar, driven by dollar weakness stemming from concerns about the US Federal Reserve’s independence and potential rate cuts. While the dollar faces headwinds from anticipated Fed policy, the pound also confronts challenges. The UK economy shows signs of slowing, with employers scaling back hiring and the potential for the Bank of England to lower interest rates in response to easing inflation. Markets anticipate a near certainty of a Fed rate cut, possibly followed by a pause, and a high probability of a BoE rate reduction, suggesting both currencies are facing dovish monetary policy prospects. The interplay between these factors will likely influence the pound’s trajectory.
EURO is gaining ground against the US dollar, driven by dollar weakness stemming from concerns about the Federal Reserve’s independence. Allegations against Fed Chair Jerome Powell and President Trump’s comments are contributing to this uncertainty. Positive Eurozone data, such as the Sentix Investor Confidence Index, is also supporting the euro. Looking ahead, key economic data releases, including US CPI, will likely influence the euro’s trajectory, though weaker Eurozone CPI data has recently reduced expectations for an ECB interest rate hike this year.
JAPANESE YEN faces a complex and uncertain future. Political factors, including the possibility of a snap election and deepening tensions between Japan and China, create headwinds. Mixed economic signals and uncertainty surrounding the Bank of Japan’s interest rate hike strategy further complicate the outlook. While geopolitical risks offer some safe-haven support, potential supply chain disruptions and concerns about US Federal Reserve independence weigh on the currency. Upcoming US inflation data will be crucial in shaping the Yen’s trajectory. Overall, the balance of factors suggests that the Yen may remain under pressure, with limited potential for significant appreciation in the near term.
CANADIAN DOLLAR is facing headwinds despite a generally weaker US dollar. A recent rise in Canada’s unemployment rate and lack of significant support from crude oil prices are limiting its potential for gains. While the US dollar’s weakness provided a temporary boost, the Canadian dollar’s upside remains capped by domestic economic concerns and the challenges in the oil market, specifically the discount on Canadian heavy sour grades. Overall, the Canadian dollar’s strength is being tempered by internal economic factors and oil market dynamics.
AUSTRALIAN DOLLAR is gaining ground, fueled by expectations of a potential interest rate hike by the Reserve Bank of Australia in response to persistent inflation. Recent hawkish statements from RBA officials, coupled with data indicating continued household spending, support this outlook. Furthermore, a weakening US Dollar, influenced by reports of a criminal investigation into the Federal Reserve Chair and softer US jobs data, is providing additional upward momentum for the Aussie. However, concerns remain due to declining Australian job advertisements and the potential for a bearish technical pattern to emerge.
DOW JONES is facing downward pressure, indicated by futures contracts trading lower. This decline follows broad weakness across US assets, exacerbated by the Trump administration’s increased criticism of the Federal Reserve. The Justice Department’s subpoena of Fed Chairman Powell adds to the uncertainty. Further weighing on the Dow are concerns surrounding bank and financial stocks, which are expected to experience revenue growth pullbacks, as well as potential caps on credit card interest rates. Weakness in major tech companies, driven by worries about datacenter spending, is also contributing to the negative outlook.
FTSE 100 experienced a slight decline, edging away from recent peak values. Investor sentiment appears sensitive to developments in the US, particularly concerning the Federal Reserve’s autonomy and potential implications of proposed credit card interest rate caps, which negatively impacted bank stocks. Simultaneously, rising gold prices provided a boost to gold mining companies listed on the index. Domestically, the UK labor market showed signs of weakening, with employers reducing hiring activity, potentially reflecting concerns about rising costs and dampened business confidence following recent budgetary changes. This combination of international and domestic factors suggests a mixed outlook for the index.
DAX experienced a positive boost, achieving new highs as defense stocks gained momentum. Concerns regarding the independence of the US Federal Reserve and escalating geopolitical tensions, specifically unrest in Iran and potential US military action, appear to be influencing market sentiment. While defense-related companies like Renk, Hensoldt, and Rheinmetall saw significant increases, and FMC benefited from its share buyback program, the automotive sector lagged behind, presenting a mixed picture for the overall index. The possibility of a joint NATO mission in Greenland and the Arctic region may also be contributing to the current market dynamics.
NIKKEI is demonstrating positive momentum, fueled by receding worries over trade tensions with China and surprisingly upbeat domestic spending data. China’s assurance that export controls will not impede normal civilian trade soothed market anxieties. Simultaneously, an unexpected rise in Japanese household spending, attributed to seasonal winter purchases and a moderation in inflation, bolstered consumer confidence. Fast Retailing’s impressive earnings forecast and stock surge, coupled with gains in other major companies like Tokyo Electron, Mitsubishi UFJ, and Toyota Motor, further propelled the index upwards. The upcoming market closure on Monday for a holiday suggests investors will be holding these gains over the long weekend.
GOLD is experiencing upward price pressure driven by several factors. Concerns about the Federal Reserve’s independence, heightened geopolitical tensions involving Iran, the US, and Israel, and expectations of future US interest rate cuts are increasing demand for gold as a safe-haven asset. A weakening US Dollar, coupled with persistent global uncertainties like the US involvement in Venezuela, tensions between China and Japan, and the ongoing Russia-Ukraine war, are further supporting gold’s value. Traders are closely watching upcoming US inflation reports for clues about the Federal Reserve’s future monetary policy, which will likely influence gold’s price trajectory.
OIL is experiencing downward pressure as the potential return of Venezuelan oil exports offsets concerns stemming from the unrest in Iran. While escalating protests and possible US intervention in Iran pose a risk to global supply, particularly given Iran’s significant oil production and exports through the Strait of Hormuz, the anticipation of Venezuela releasing a substantial amount of crude to the US market appears to be mitigating those fears. The resumption of Venezuelan exports, with US oil companies preparing tanker shipments, is contributing to the decline in WTI crude futures.