Market Update for January 22nd
The atmosphere in the markets brightened as the week progressed, particularly with the reduction of tensions between the United States and the European Union. Today, the U.S. Bureau of Economic Analysis will provide updated data on third-quarter gross domestic product (GDP) as well as personal consumption expenditure (PCE) figures for October and November. Investors are also anticipated to focus on the weekly new jobless claims report.
USD Performance This Week
The data indicates the percentage changes of the U.S. dollar against key currencies this week, highlighting that the U.S. dollar has weakened most significantly against the New Zealand dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.90% | -0.60% | 0.68% | -0.64% | -1.98% | -2.01% | -0.81% | |
| EUR | 0.90% | 0.31% | 1.56% | 0.25% | -1.10% | -1.12% | 0.08% | |
| GBP | 0.60% | -0.31% | 1.02% | -0.06% | -1.40% | -1.43% | -0.22% | |
| JPY | -0.68% | -1.56% | -1.02% | -1.30% | -2.61% | -2.63% | -1.46% | |
| CAD | 0.64% | -0.25% | 0.06% | 1.30% | -1.31% | -1.35% | -0.17% | |
| AUD | 1.98% | 1.10% | 1.40% | 2.61% | 1.31% | -0.03% | 1.19% | |
| NZD | 2.01% | 1.12% | 1.43% | 2.63% | 1.35% | 0.03% | 1.22% | |
| CHF | 0.81% | -0.08% | 0.22% | 1.46% | 0.17% | -1.19% | -1.22% |
The heat map illustrates changes in major currencies, with the U.S. dollar displayed as the base currency. For instance, moving from USD to JPY shows the respective percentage change for that pair.
On Wednesday, risk appetite returned after U.S. President Trump announced an agreement on a “framework for a future deal on Greenland.” He also indicated that he would not implement tariffs on eight European nations that were set to begin on February 1. This news contributed to a midweek surge of more than 1% in Wall Street’s major indexes after a decline earlier in the week. Meanwhile, U.S. stock futures were slightly up this morning, while the USD index hovered just below 99.00, having ended a two-day losing streak.
Australian statistics released this morning showed a drop in the unemployment rate to 4.1% in December, down from 4.3% in November, surprising analysts who had anticipated a rise to 4.4%. Employment growth for the month added 65,200 positions, recovering from November’s loss of 28,700 jobs. The AUD/USD pair gained positive momentum from this news, trading above 0.6800, marking its highest level since October 2024, with an increase of about 0.7% for the day.
The EUR/USD pair is currently stabilizing below the 1.1700 mark after having dipped over 0.3% yesterday. The European Central Bank will soon announce outcomes from its monetary policy meeting, and the European Commission is expected to release preliminary data regarding the January consumer confidence index.
For GBP/USD, it remained steady above 1.3400 during the European session today after Wednesday’s adjustment.
Finally, the USD/JPY pair, after a period of uncertainty, gained traction, moving toward 159.00 as early Thursday unfolded. The Bank of Japan is scheduled to disclose its monetary policy decision during the Asian session on Friday.
Gold finished positively, despite pulling back from an all-time peak of near $4,890 yesterday. After a continued slump in Asian markets, XAU/USD found support, closing flat above $4,800.
FAQs about Inflation
Inflation assesses the rise in prices for a standard selection of goods and services. Headline inflation is expressed as a percentage change both monthly and yearly. Core inflation omits more volatile elements like food and fuel, often influenced by geopolitical factors or seasons. Economists often focus on core inflation, which is the level central banks aim to manage, typically around 2%.
The Consumer Price Index (CPI) tracks changes in the price of a basket of goods and services over time, generally presented as a month-over-month and year-over-year percentage change. Core CPI, which excludes food and fuel that can fluctuate widely, is a target for central banks. If core CPI exceeds 2%, it typically leads to higher interest rates, and the reverse is true when it falls below that threshold. An increase in interest rates usually strengthens the currency, resulting in a common relationship between inflation and currency value.
It might seem strange, but a country’s high inflation rate can sometimes lead to an increase in its currency’s value. This happens because central banks often raise interest rates in response to inflation, which encourages foreign investment seeking stable returns.
Gold has often been seen as a go-to asset during high inflation periods due to its stable value. While it still attracts investment during extreme market fluctuations, it doesn’t always perform well amidst rising inflation. Increased interest rates that central banks implement to combat inflation can diminish gold’s appeal since it leads to higher opportunity costs for holding it compared to interest-bearing assets. Conversely, lower inflation can positively influence gold, as it typically means lower interest rates, bolstering its investment viability.
