GBPUSD drops to two-week low as US Dollar extends post-NFP gains on Fed concerns

Market turns risk averse early Monday as weekend comments from Fed Chair Jerome Powell push back the traders’ anticipation for FOMC rate cuts in March. The same joined robust US jobs report and hopes of a “soft landing” to defend the policy hawks, allowing the US Dollar to rise to the highest level in two months.

Apart from that, China’s equity rout and an escalation in the geopolitical tensions surrounding the Middle East and the Gaza Strip also roil the sentiment.

With this, the GBPUSD pair drops the most among the G10 currency pairs while USDJPY and AUDUSD appear mostly dicey as US Treasury bond yields struggle to defend Friday’s rebound. Further, Gold Price pares the first weekly gain in three whereas Crude Oil licks its wounds after falling the most in four months during the last week.

Elsewhere, Wall Street closed positive but the US Stock Futures printed mild losses. Further, the Asia-Pacific share edged lower led by losses in China, Australia and Indonesia.

Meanwhile, BTCUSD and ETHUSD ignore the US Dollar’s rebound as on-chain matrices join optimism about Ethereum spot ETF approval.

Following are the latest moves of the key assets:

• Brent oil stays depressed at $78.00 after falling the most in four months the last week.
• Gold price drops to $2,030 after snapping a two-week losing streak.
• USD Index defends the five-week uptrend around 104.00, the highest level in two months.
• Wall Street closed with gains but the Asia-Pacific stocks drifted lower. That said, equities in the UK and Europe trade mixed during the initial hour.
• BTCUSD and ETHUSD both post minor gains near $43,000 and $2,300 by the press time.

Hawkish Powell, strong US employment propel US Dollar

On Friday, US Nonfarm Payrolls (NFP) jumped to the highest level in a year while the Wage Growth also rallied to a 13-month high. The same joined upbeat US economics published earlier in the week to allow the US Dollar Index (DXY) to print a five-week uptrend. Also keeping the US Dollar firmer are talks about the recovery in the US Treasury bond yields. Additionally keeping the Greenback and the yields upbeat were the weekend comments from Fed Chair Powell who reiterated previous comments rejecting FOMC rate cuts in March, as well as pushed back odds favoring rate cuts in May 2024.

Furthermore, Federal Reserve Bank of Chicago President Austan Goolsbee praised Friday’s US employment figures but flagged the US “productivity” concerns and tested the US Dollar bulls.

On a different note, Former US President Donald Trump braces for another term and promises up to 60% tariffs on Chinese products if he is elected. The same joins the US-Houthi tensions and Hamas’ readiness to reject the Gaza peace proposal to weigh on the sentiment and favor the US Dollar bulls.

It should be noted, however, that the effectiveness of the People’s Bank of China’s (PBoC) 50 bp RRR cut and a 13th monthly growth in Caixin Services PMI challenges the risk aversion and the Greenback’s upside momentum, especially amid a light calendar.

Moving on, Japan’s Services PMI for January came in better-than-expected and prod the USDJPY bulls while ECB policymaker and Bundesbank Chief Joachim Nagel flagged hopes of witnessing a soft landing in the Eurozone, which in turn puts a floor under the EURUSD price. Further, GBPUSD fails to justify BoE Chief Economic Philip Lane’s hawkish comments amid doubts about the UK’s economic transition, especially after the recent downbeat data.

• Strong buy: USDCAD, USDJPY
• Strong sell: Crude Oil, US Dollar, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold
• Sell: DAX, FTSE 100, BTCUSD, AUDUSD, EURUSD

PMIs in focus…

Looking forward, the final readings of Eurozone PMIs for January will join the US ISM Services PMI and central bankers’ speeches from the bloc and the US to entertain market players on Monday. It’s worth noting that the risk catalysts and rate cut signals will be more important and can allow the US Dollar bulls to keep the reins moving forward.

May the trading luck be with you!