Market correlations appeared to break down once again, as asset classes struggled to find direction ahead of Powell’s and Trump’s testimonies.
Gold retreated from its record highs while crude oil continued to climb along with Treasury yields, despite a weaker U.S. dollar.
Here are the latest updates you need to know!
Headlines:
- Japanese banks closed for the National Foundation Day holiday
- U.K. BRC retail sales monitor up down from 3.1% y/y to 2.5% in January (1.1% forecast)
- Australia’s NAB business confidence improved from -2 to +4 in January
- U.S. President Trump reiterated that there will be no exceptions for higher steel and aluminum tariffs starting on March 4
- Australian PM Anthony Albanese hinted at exemptions for U.S. steel and aluminum tariffs
- Canadian Industry Minister called Trump’s tariffs “totally unjustified” and that the country will have a “clear and calibrated” response
- BOE MPC member Mann discussed how firms are struggling to raise prices given subdued spending, cites inflation as less of a threat
- ECB official Schnabel acknowledged that they are seeing more uncertainty related to trade
- U.S. NFIB Small Business Index down from 105.1 to 102.8 in January (104.6 forecast)
- Fed head Powell mentioned that they don’t need to be in a hurry to adjust policy, can still ease if labor market unexpectedly weakens or inflation falls more quickly than expected
- FOMC member Hammack noted that rate hike is not the base case, will evaluate trade policies as they come in
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Market uncertainty stemming from Trump’s tariffs announcements kept risk-off vibes in play during early Asian market hours, creating further gains for gold prices before the precious metal went on to retreat over the next trading sessions.
Bitcoin also started the day on a positive note but proceeded to return these gains and more, dipping below the $96,000 mark towards the end of the New York session.
Meanwhile, crude oil staged a steady climb as the day went on, propped up by elevated geopolitical tensions after Trump called for Hamas to release hostages by the weekend or risk an end to the ceasefire with Israel.
U.S. equity futures spent most of the day in negative territory, as investors braced for speeches by Fed head Powell and President Trump, but the S&P 500 index managed to catch marginal gains when the former reiterated that the U.S. central bank is in no rush to increase borrowing costs.
Still, equity indices ended mixed, as another strong showing from Meta shares and a 6% gain in Intel stock prices on expectations of higher U.S. chip production allowed the Dow to close 0.28% higher.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
Major pairs started the day on a relatively quiet note, as forex traders were likely biting their nails ahead of Fed Chairperson Powell’s testimony in Congress.
The Greenback, which already started turning lower a few hours into the London session on improving risk sentiment, extended its slump when Powell reiterated that they are in no hurry to tighten.
The U.S. currency chalked up its steepest decline versus GBP (-0.63%) followed by EUR (-0.53%) while USD/JPY and USD/CHF held their ground in positive territory. These dollar pairs had already veered away from the pack before the USD selloff picked up steam, as risk appetite also weighed on the safe-haven yen and franc.
Upcoming Potential Catalysts on the Economic Calendar:
- Chinese new loans and money supply data coming up
- U.S. headline and core CPI at 1:30 pm GMT
- Fed head Powell’s speech at 3:00 pm GMT
- U.S. EIA crude oil inventories at 3:00 pm GMT
- FOMC member Bostic’s speech at 5:00 pm GMT
- BOC Summary of Deliberations at 6:30 pm GMT
- U.S. Federal Budget Balance at 7:00 pm GMT
- FOMC member Waller’s speech at 10:00 pm GMT
Market participants could hold out for the upcoming U.S. CPI report during the New York trading session, as the inflation results could strongly influence Fed policy expectations.
After that, we’ve got another speech by Fed Chairperson Powell, although he is expected to repeat most of his talking points from the previous testimony.
As always, stay on your toes for potential shifts in market sentiment brought about by tariffs headlines as well. Don’t forget to check out our brand new Forex Correlation Calculator when taking any trades!
