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  • Writer's pictureSieracki Milosz

USD Resilience Amidst Global Challenges: Economic Insights

Economic Insights Jan 17
USD Maintains Strength Amidst Global Concerns

In the dynamic landscape of global finance, the US Dollar (USD) continues to assert its dominance across the board, strategically positioning itself amidst economic uncertainties stemming from China's growth concerns and escalating geopolitical tensions in the Middle East.

China's Economic Indicators Signal Unease

China's fourth-quarter Gross Domestic Product (GDP) figures revealed a YoY expansion of 5.2% in 2024's final quarter, slightly below market estimates of 5.3%. Quarterly growth of 1.0% in Q4 aligned with expectations. Concerns loomed as Retail Sales grew at 7.4% YoY in December, falling short of the anticipated 8.0%, while Industrial Production exceeded expectations at 6.8% YoY.

Geopolitical Tensions and USD Support

On the geopolitical front, Iran-backed Houthi rebels struck a US-owned cargo vessel, intensifying market jitters. Despite these challenges, the US Dollar finds support in the less dovish stance of US Federal Reserve (Fed) Governor Christopher Waller. His recent remarks, retracting the dovish policy pivot, have contributed to a shift in market expectations of Fed rate cuts, with a 62% probability priced in for March, compared to 81% at the week's outset.

USD Index at Five-Week Highs

As of the latest update, the US Dollar Index is hovering above 103.50, reaching five-week highs. This remarkable strength persists even in the face of a relatively muted performance in US Treasury bond yields. Market sentiment, reflected in US S&P 500 futures down by 0.33%, further justifies the prevailing risk-off mood.

G10 Currency Basket Dynamics

Within the G10 currency basket, risk aversion has taken its toll on the Antipodeans. AUD/USD sheds 0.55%, trading near 0.6550, while NZD/USD approaches the 0.6100 level, down by 0.30%. Conversely, USD/JPY keeps pushing higher, nearing 148.00, reflecting a 0.47% daily gain.

Euro and Pound Sterling Under Pressure

EUR/USD trades near over one-month lows around 1.0850, influenced by pushback from European Central Bank (ECB) policymakers against interest rate cuts. A mixed German ZEW survey and ECB President Christine Lagarde's upcoming speech at the World Economic Forum (WEF) Annual Meeting add further pressure. GBP/USD rebounds, testing 1.2650, following an unexpected increase in UK annual CPI inflation to 4.0% in December against the expected 3.8% drop.

CAD Resilience and Gold's Decline

USD/CAD holds above 1.3500, with WTI oil prices stagnant around $72. Geopolitical concerns in the Red Sea persist, while the Canadian Dollar reacts to unexpected Canadian CPI inflation, damping early rate-cut expectations by the Bank of Canada (BoC). Gold prices hit weekly lows near $2,020, signaling a decline driven by fading hopes of aggressive Fed rate cuts.

Silver, WTI Crude, and Energy Market Dynamics

Silver (XAG/USD) faces a second consecutive day of decline, echoing the influence of a bid US Dollar and risk-averse trading sentiments. West Texas Intermediate (WTI) Crude Oil hovers around $72.10 per barrel during the Asian session, impacted by increased US Crude oil production in the Permian Basin, reaching 5.9 million barrels per day.

Conclusion: USD's Steadfast Stance

In conclusion, the US Dollar stands resilient in the face of economic uncertainties and geopolitical tensions. As global dynamics continue to evolve, the USD's strength remains a focal point, influencing currency movements, market sentiments, and shaping expectations for the future.

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