Market sentiment turned cautious on Thursday amid renewed geopolitical tensions surrounding Ukraine and Gaza, alongside concerns over Trump’s trade policies and budget plans. However, disappointing US economic data and cautious remarks from Federal Reserve officials pushed the US Dollar Index (DXY) toward a potential third consecutive weekly decline.
US data showed the Leading Index for January fell to -0.3% (vs. -0.1% expected), while the Philadelphia Fed Business Index dropped sharply to 18.1 from 44.3 prior. Initial jobless claims also increased to 219K, surpassing forecasts of 215K. Meanwhile, Fed officials, including Bostic, Musalem, Goolsbee, and Governor Adriana Kugler, reiterated a cautious approach to monetary policy, signaling no rush to adjust interest rates.
On the geopolitical front, reports suggested the US opposed the phrase "Russian Aggression" in the G7 Ukraine statement, hinting at a softer stance toward Moscow. However, Ukraine's President Zelenskyy remained hopeful after discussions with US General Kellogg. In the Middle East, US envoy Witkoff downplayed concerns over Trump’s Gaza plan, suggesting it aims to benefit Palestinians rather than displace them.
Elsewhere, US Treasury Secretary Bessent reinforced the need for a strong US Dollar, warning against currency manipulation by other nations. Despite Trump’s push for tariffs and budget deficit cuts, markets largely viewed these as strategic negotiation tools rather than immediate threats, limiting their impact on risk sentiment.
The US Dollar’s weakness has set the stage for weekly gains across major currencies and commodities. However, the Euro (EUR), British Pound (GBP), and Canadian Dollar (CAD) struggle to maintain momentum. At the same time, the Japanese Yen (JPY) and New Zealand Dollar (NZD) emerge as the top gainers against the Greenback.
Meanwhile, Gold remains near its all-time high despite a slight pullback, and Crude Oil aims for its first weekly gain in five. Elsewhere, cryptocurrencies and equities continue to edge higher, while major bond yields dwindle.
The weaker US Dollar supports EURUSD and GBPUSD in securing weekly gains, but their upside remains limited due to dovish expectations surrounding the European Central Bank (ECB) and the Bank of England (BoE). ECB policymaker Gediminas Šimkus backed market forecasts of three rate cuts in 2025, while interest rate futures indicate traders are pricing in 50 basis points of BoE rate cuts before year-end. Meanwhile, the EU consumer confidence flash reading for February improved to -13.6 (vs. -14.0 expected and -14.2 prior), while UK Retail Sales also showed resilience.
Elsewhere, USDJPY remains under pressure despite rebounding from a 10-week low, as concerns over Japan's potential market intervention grow. A more hawkish Bank of Japan (BoJ) stance, supported by Japan’s core inflation rising at its fastest pace in 19 months, has kept bears in command. That said, BoJ Governor Ueda and Prime Minister Ishiba raised concerns about rising yields on Friday, fueling speculation of possible intervention and triggering the Yen pair’s latest recovery.
Cautious remarks from Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ) officials, despite recent rate cuts, supported AUDUSD and NZDUSD amid a weaker US Dollar. However, USDCAD struggled to benefit from the Greenback’s softness and rising Crude Oil prices, as market concerns over potential Bank of Canada (BoC) rate cuts and economic challenges due to trade and political uncertainties weighed on the Loonie.
Gold remains in demand despite retreating from its all-time high, supported by a weaker US Dollar, geopolitical uncertainties, and strong buying from China and India. The metal is set for its eighth consecutive weekly gain, eyeing the $3,000 mark after peaking near $2,955. However, with overbought conditions, a pullback is possible—though a stronger US Dollar, which remains under pressure from weak US data and mixed Fed signals, would be needed to trigger such a move.
Bitcoin (BTCUSD) and Ethereum (ETHUSD) hold onto weekly gains despite slowing momentum, supported by the US SEC’s focus on crypto staking and regulatory developments for the task force team. Optimism around US-Russia diplomacy and Trump’s pro-crypto stance also underpins sentiment.
Meanwhile, Crude Oil eyes its first weekly gain in five as expectations of a US Strategic Petroleum Reserve (SPR) refill and a possible OPEC+ output delay offset rising inventories. Geopolitical tensions in the Middle East and easing trade concerns further support oil prices.
Friday’s focus will be on the preliminary February PMIs from major economies, including the US, UK, and Eurozone, alongside key geopolitical developments related to Ukraine, tariffs, and Gaza. A potential rebound in the US Dollar, driven by firmer activity data, could challenge EURUSD, GBPUSD, and USDCAD traders.
Meanwhile, Gold may take a breather on its path to the $3,000 mark, while Crude Oil and cryptocurrencies could see a pullback unless weaker US data weighs on the Greenback—a less likely scenario.
May the trading luck be with you!
