The upcoming release of US inflation data is poised to affirm hawkish expectations from the Federal Reserve, with markets closely monitoring its potential impact on the US Dollar and gold prices. As traders anticipate the top-tier US Producer Price Index (PPI) data, the US Dollar has experienced significant fluctuations. This has led to a reevaluation of USD positions, affecting various currency pairs, including the USD/JPY, which saw a volatile Asian session below 158.00 on Tuesday. Simultaneously, the Reserve Bank of Australia's dovish stance, coupled with China's economic challenges and geopolitical risks, presents headwinds for the Australian Dollar.
Markets have been cashing in on their US Dollar longs ahead of the PPI data, which is expected to show an annual increase to 3.4% in December from 3% in November. This anticipation has contributed to the consolidation of the US Dollar's overnight retreat. Additionally, speculation surrounding former President Trump's tariff plans has influenced both the US Dollar and gold price movements.
In Asian trading hours, the USD/JPY pair encountered significant volatility, driven by negative sentiment surrounding Japanese stocks and a broad retreat in the US Dollar. Bank of Japan Deputy Governor Himino recently ruled out a rate hike later this month, further impacting market dynamics. Meanwhile, a risk-on rally in Chinese equities is lifting broader market sentiment, despite ongoing concerns about China's economic stability.
“China plans to implement a variety of stimulus measures to counter the impact of anticipated US tariffs and a continued housing market downturn.” – Goldman Sachs Chief Economist Jan Hatzius
The risk-on rally in Chinese equities has put the safe-haven US Dollar on edge, contributing to its recent retreat. However, the gold price is making another push toward the $2,700 barrier as investors seek refuge amid market uncertainty. This upward trend in gold prices highlights the significant impact of ongoing market volatility on precious metals.
US Treasury bond yields also experienced early fluctuations on Tuesday, as investors reassessed their positions amid shifting market dynamics. Traders have notably scaled back their predictions for a US Federal Reserve interest rate cut this year, now expecting only one reduction compared to two projected in December last year.