Forex Today – Asian Session: The dollar returns amid fears of a new Recession and hawkish Fed comments

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Things to watch out for on Thursday, January 19:

The US dollar ended with gains against most of its major rivals on Wednesday, reversing early losses that sent it trading to multi-month lows against most of its major rivals. The Bank of Japan announced its monetary policy at the beginning of the day, provoking a rather volatile reaction. The central bank decided to keep its benchmark rate at -0.10%, and the JGB’s yield target unchanged at 0.00%, with an upper bound of 0.50%. BOJ Governor Haruhiko Kuroda then signaled that they will maintain their ultra-loose monetary policy until sustainable and stable inflation is achieved, while adding that there was “no need to further widen bond target bands.”

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Global yields fell, initially weighing on the US dollar, later reflecting risk aversion and rising along with the dollar. Weaker-than-expected US data revived recession fears. The Producer Price Index (IPP) US increased at an annual rate of 6.2%, compared to 7.3% in November. On the other hand, December Retail Sales contracted 1.1% month-on-month, while Industrial Production fell 0.7% in the same month, in both cases missing market expectations. On the bright side, MBA mortgage approvals for the week ending January 13 rose a whopping 27.9% as interest rates fell to their lowest in months.

Wall Street started the day with modest gains but ended up slumping, with the Dow Jones Industries losing about 500 points on the day.

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The EUR/USD pair hit a multi-month high of 1.0886 but stabilized around 1.0790. On the other hand, the GBP/USD pair jumped to 1.2435 after the release of UK inflation figures. The Consumer Price Index (CPI) rose at an annualized rate of 10.5% in December, below the 10.7% registered in November. Subsequently, the pair fell back on safety demand towards the 1.2330 price zone.

The head of monetary policy at the European Central Bank Francois Villeroy de Galhau, declared on Wednesday that it is “too early to speculate about what we will do in March”, words that partly offset speculation that the ECB would raise rates by 25 basis points in March.

St Louise Federal Reserve Chairman James Bullard said US interest rates need to rise further to ensure inflationary pressures recede. Likewise, Loretta Mester, president of the Federal Reserve Bank of Cleveland, welcomed the measures taken to control inflation, while Esther George, of the Fed, affirmed that the central bank must restore price stability, “which means going back to 2% inflation”. For the most part, Fed speakers maintained their hawkish stance and hinted more rate hikes in the future.

The AUD/USD pair reached a high of 0.7063, but settled at 0.9640. The USD/CAD pair is approaching the 1.3500 level. Lastly, the USD/JPY pair rallied as high as 131.57 but pared most of its intraday gains to end around 128.80.

Gold is trading at $1,903 a troy ounce, while negative momentum from US stocks weighed on oil prices. The barrel of WTI is trading at $70.50.

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Source: Fx Street

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