Forex Today: Dollar Struggling Between Caution and Falling Yields

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This is what you need to know to trade today Thursday January 19:

The US dollar is having a hard time extending Wednesday’s V-shaped rally on the back of persistent weakness in US Treasury yields amid risk aversion. Risk aversion flows dominate as Asian markets track Wall Street indices lower. The main US indices lost more than 1% on renewed fears of a possible US recession after disappointing data on US consumer and industrial spending. The flight to the safe haven in the US government bond market is pushing down Treasury yields across the curve. The recent sell-off in global yields was triggered by the Bank of Japan’s (BoJ) decision not to make changes to its yield control policy a day earlier and lower rate hike expectations from the Federal Reserve (Fed). US.

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At the time of writing, Two-year US Treasury yields are trading at their lowest level since October 2022, near 4.0%, while US S&P 500 futures are down 0.12% on the day. Meanwhile, the DXY Dollar Index has turned lower, erasing early gains to trade flat around 102.30.

The mix of Fed commentary is also leaving markets in limbo, though markets continue to pricing in a 25 basis point (bp) Fed rate hike over the next two months. Earlier in the Asian session, Philadelphia Fed President Patrick Harker reiterated that he is ready for the Federal Reserve to move at a slower pace of rate hikes. Dallas Fed President Lorie Logan also supported the idea of ​​future 25 basis point rate hikes.

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Regarding currencies, the japanese yen is the strongest currency while the australian dollar remains the weakest. Renewed recession fears boost the yen’s safe-haven status as markets digest Bank of Japan deliberations. The USD/JPY it has briefly dipped below the 128.00 level, coming under strong selling pressure in the early hours of Europe.

The AUD/USD and the NZD/USD they are reeling from the shock induced by national fundamentals. Australian employment data disappointed, with the number of Australians employed falling to 14,600 in December from 22,500 expected and 64,000 the previous month. Australian unemployment rate rose to 3.5% in December, versus 3.4% expected, while the participation rate fell to 66.6% from 66.8 previously. Dismal jobs data weighed on Reserve Bank of Australia (RBA) rate hike expectations and plunged AUD/USD near 0.6900.

Meanwhile, the NZD/USD fell towards 0.6400 after the New Zealand Prime Minister, Jacinda Ardern, said she would step down as leader on February 7, long before the general elections on October 14. Meanwhile, the pair USD/CAD is stable around 1.3500, amid the weakness of the US dollar and the fall in prices of the WTI. For now, US oil is down 1.25% on the day to $78.53 amid recession risk.

The EUR/USD wavers around 1.0800, awaiting the speech of the president of the European Central Bank (ECB), christine lagarde, to learn new clues about the path of rate increases. Meanwhile, Eurozone current account data and ECB monetary policy minutes will come under close scrutiny by market participants.

The GBP/USD trades below 1.2350, retreating from 5-week highs amid risk aversion. The Bank of England Q4 Credit Conditions Survey will be the only relevant sterling data on Thursday. However, traders will be watching US jobless claims, housing data and Fed speeches for further trade incentives.

The price of Prayed It remains above $1,900 amid falling US Treasury yields as investors assess the chances of a slowdown in the pace of Fed rate hikes.

The Bitcoin pulls away from the lows but continues to trade below the $21,000 level, defending minor gains, while the ethereum struggles to break the $1,500 barrier amid lower risk appetite.

Source: Fx Street

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