Worldwide – Escalating geopolitical tensions in the Middle East, coupled with economic uncertainties in China, are contributing to jittery markets. China’s stock market has extended its downtrend, hitting a four-year low, following remarks by Premier Li Qiang in Davos that dashed hopes of significant stimulus to support the country’s economic recovery.
In addition to China’s economic concerns, US Federal Reserve (Fed) Governor Christopher Waller’s comments have led to reduced expectations for aggressive rate cuts, prompting a reassessment of Fed policy pivot expectations for the year. Strong US Retail Sales data, exceeding forecasts with a 0.6% increase, also supports a less dovish Fed view.
Meanwhile, hawkish comments from European Central Bank (ECB) officials have dispelled hopes of an early rate cut, with ECB President Christine Lagarde indicating a likely cut in the summer.
Recent geopolitical events have added to market tension, including US military strikes in Yemen and retaliatory actions by Houthi rebels, escalating the situation. The US Dollar, initially at five-week tops near 103.70, has seen a pullback due to sluggish US Treasury bond yields hovering just above the 4.0% level.
Investors are now awaiting mid-tier US economic data, including Jobless Claims, Housing Starts, and Building Permits, for insights into Fed rate cut expectations. Atlanta Federal Reserve President Raphael Bostic’s remarks later in the trading day will also be closely monitored.
In the G10 FX space, AUD/USD has rebounded above 0.6550, while NZD/USD follows suit, posting modest gains. USD/JPY faces correction below 148.00 despite expectations of the Bank of Japan maintaining its monetary policy settings. EUR/USD holds around 1.0900, supported by ECB policymakers’ resistance to rate cuts and a weaker US Dollar. GBP/USD remains firm at around 1.2700, buoyed by strong UK inflation data, reducing the likelihood of a BoE rate cut.
USD/CAD stays below 1.3500, influenced by geopolitical developments between the US and Iran-backed Houthi rebels. Gold prices attempt a bounce from five-week lows at $2,002, with recovery prospects uncertain amid bearish technicals. Market participants remain cautious amidst a complex landscape of economic, geopolitical, and monetary policy factors.
