Forex News
- Australian Dollar declines as trade surplus widened to AUD 3,373M in December 2025.
- Australia’s exports rose 1.0% MoM, while monthly imports declined 0.8% in December.
- The US Dollar remains steady after registering modest gains in the previous session.
The Australian Dollar (AUD) extends its losses against the US Dollar (USD) on Thursday following the release of Australia’s Trade Balance data, which showed the trade surplus widened to AUD 3,373M in December 2025, up from a downwardly revised AUD 2,597M in November and slightly above market expectations of AUD 3,300M.
Australia’s Exports grew 1.0% month-on-month (MoM) in December, rebounding from an upwardly revised 4.0% drop in November, largely driven by metal ores and minerals. Imports fell 0.8% MoM, steeper than the downwardly revised 0.2% decline previously, weighed down by other merchandise goods.
China's Services Purchasing Managers' Index (PMI) rose to 52.3 in January from 52.0 in December. This figure came in stronger than the expectations of 51.8. China is a key trading partner of Australia, so any changes in the Chinese economy could impact the AUD.
The AUD rose after the release of seasonally adjusted S&P Global Purchasing Managers’ Index (PMI) data, which showed Australia’s Composite PMI rising to 55.7 in January from 51.0 in December. The expansion was the strongest in 45 months. Meanwhile, Services PMI climbed to 56.3 from 51.1, marking its highest level since February 2022. The reading beat the flash estimate of 56.0 and remained above the 50.0 threshold, extending the run of expanding services activity to two years.
The Reserve Bank of Australia (RBA) raised the Official Cash Rate (OCR) by 25 basis points (bps) to 3.85% on Tuesday, citing stronger-than-expected growth and a sticky inflation outlook. As the tightening cycle begins, markets have lifted the probability of a May hike to 80% and now price in roughly 40 bps of further tightening over the rest of the year.
RBA Governor Michele Bullock said during the post-meeting press conference that inflation pressures remain too strong, warning it will take longer to return to target and is no longer acceptable. She stressed the board will stay data-dependent and avoid forward guidance.
US Dollar holds ground after registering modest gains
- The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, steadied after registering modest gains in the previous session and is trading near 97.60 at the time of writing. The Greenback advances as markets price in a slower pace of potential Federal Reserve (Fed) rate cuts.
- Fed Governor Lisa Cook said she would not back another cut without clearer evidence that inflation is easing, stressing greater concern over stalled disinflation than labor market weakness.
- Investors also weighed the implications of Kevin Warsh’s nomination as Fed chair, citing his preference for a smaller balance sheet and a less aggressive approach to rate reductions. Meanwhile, US President Donald Trump said he would not have nominated Warsh if he favored rate hikes. Trump further stated that there was “not much” doubt the US central bank would lower rates because “we’re way high in interest,” but now “we’re a rich country again.”
- ADP Employment Change showed private payrolls increased by just 22K in January, well below market expectations for a stronger 48K reading and 37K (revised from 41K) prior. The weak print carried extra weight given the postponement of official government data.
- Institute for Supply Management (ISM) remained unchanged in January, with the ISM Services PMI holding steady at 53.8. The print, however, came in above analysts' expectations of 53.5.
- An unexpected rebound in US factory activity underscores economic resilience, as the Institute for the ISM Manufacturing Purchasing Managers' Index (PMI) rose to 52.6 from 47.9 in December, beating market expectations of 48.5.
- Australia’s RBA Trimmed Mean inflation increased to 0.2% month-over-month (MoM) and 3.3% year-over-year (YoY). The monthly CPI rose 1.0% in December, up from 0% previously and above the 0.7% forecast.
- China's RatingDog Manufacturing Purchasing Managers' Index (PMI) rose to 50.3 in January from 50.1 in December. This figure came in line with the expectations. The latest reading indicated a slight expansion in factory activity, but the fastest growth since last October.
- Australia’s TD-MI Inflation Gauge rose 3.6% year-over-year (YoY) in January, up from 3.5% previously. The Monthly Inflation Gauge increased by 0.2%, slowing sharply from December’s two-year high of 1% and marking the weakest pace since August.
- ANZ Job Advertisements jumped 4.4% month-over-month (MoM) in December 2025, rebounding from a revised 0.8% decline and posting the first increase since July. The rise was also the strongest monthly gain since February 2022, signaling renewed momentum in hiring toward year-end.
Australian Dollar tests 0.7100 support near lower ascending channel boundary
The AUD/USD pair is trading around 0.7000 on Thursday. Daily chart analysis indicates that the pair remains within the ascending channel pattern, indicating a persistent bullish bias. The 14-day Relative Strength Index (RSI) is at 69; it typically signals bullish momentum.
The AUD/USD pair may target 0.7094, the highest level since February 2023, which was recorded on January 29. A break above this level would support the pair to test the upper ascending channel boundary around 0.7250. On the downside, the primary support lies at the lower boundary of the channel around 0.6990, followed by the nine-day Exponential Moving Average (EMA) of 0.6965. Further declines would put downward pressure on the pair to navigate the region around the 50-day EMA at 0.6767.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
- The Indian Rupee continues to trade firmly against the US Dollar on the US-India trade truce euphoria.
- Investors expect the RBI to keep the Repo Rate steady at 5.25%.
- The Fed is unlikely to cut interest rates in the March and April policy meetings.
The Indian Rupee (INR) ticks up at open against the US Dollar (USD) on Thursday. The USD/INR pair trades subduedly around 90.50 as the Indian Rupee holds United States (US)-India trade truce-driven gains.
On Monday, US President Donald Trump and Indian Prime Minister (PM) Narendra Modi confirmed tariff reduction on New Delhi’s exports to Washington to 18% from 50%, which included punitive tariffs for buying oil from Russia.
The event led to a strong rally in the Indian stock market and the Indian Rupee, alongside significant buying by overseas investors. On Wednesday, the net investment by Foreign Institutional Investors (FIIs) in the cash segment of the Indian stock market was 5,236.28 crore.
However, the US-India trade truce turning out to be insignificant for FIIs' return to the Dalal Street, given their nominal investment on Wednesday. Foreign investors poured mere Rs. 29.79 crore worth of investment in the Indian equity market the previous day.
The interest of foreign investors remaining subdued toward the Indian equity market, even after the confirmation of tariff truce between both nations could be unfavorable for the Indian Rupee in the longer term. The Indian currency remained the top Asian underperformer in 2025 due to trade tensions between the US and India.
Daily Digest Market Movers: Trump expects Warsh to reduce interest rates after returning to Fed
- The Indian Rupee trades marginally higher against the US Dollar, even as the latter trades broadly firm on expectations that the Federal Reserve (Fed) will not cut interest rates in the near term.
- At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.15% higher to near 97.80, the highest level seen in over a week.
- According to the CME FedWatch tool, traders seem confident that the Fed will leave interest rates unchanged in the range of 3.50%-3.75% in its policy meetings in March and April.
- Federal Reserve Governor Lisa Cook said in an event at the Economic Club in Miami on Wednesday that it is prudent to sit back and the leave policy rates steady as long as inflation resumes progress toward the central bank’s 2% target.
- Meanwhile, expectations from nominated new Fed Chairman Kevin Warsh that interest rate cuts won’t be aggressive in his tenure are also acting as key drag on dovish central bank prospects. Warsh is known for his preference for a smaller balance sheet and a firmer US Dollar from his previous term as Governor at the Fed.
- Contrary to market expectations, United States (US) President Donald Trump is confident that Warsh will lower interest rates after returning to the Fed. “I mean, if he came in and said, ’I want to raise them [interest rates]’ he would not have gotten the job," Trump said in an interview with NBC on Wednesday when asked whether he expects Warsh to lower borrowing rates.
- On the economic data front, ADP Employment Change data for January has come in below expectations, while the ISM Services Purchasing Managers’ Index (PMI) expanded at a steady pace. The ADP reported that the private sector created 22K fresh jobs, lower than estimates of 48K and the prior reading of 37K. The Services PMI remained steady at 53.8, higher than the consensus of 53.5.
- In India, investors await the Reserve Bank of India’s (RBI) monetary policy announcement on Friday in which it is expected to leave its Repo Rate steady at 5.25% as the impact of recent interest rate cuts is yet to be passed through to the economy.
- However, the Indian central bank is seen keeping the door open for interest rate cuts in upcoming policy meetings as India’s retail Consumer Price Index (CPI) has remained well below the central bank’s tolerance band of 2%-6% for several months.
Technical Analysis: USD/INR stays below 20-day EMA
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In the daily chart, USD/INR trades at 90.5740. The pair holds below the 20-EMA, which has rolled over, keeping the near-term bias bearish. The downward slope of the average underscores fading upside pressure. RSI at 44.93 sits below its midline, confirming weak momentum. A rebound would face initial resistance at the 20-EMA at 91.0001.
Bearish traction persists while price remains under the declining average and rallies are capped by supply. If the RSI fails to reclaim 50 and momentum stays soft, the pair could extend the pullback. A decisive close above the moving average would shift bias toward stabilization and a recovery phase.
(The technical analysis of this story was written with the help of an AI tool.)
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
- GBP/JPY snaps a four-day winning streak amid some repositioning ahead of the BoE meeting.
- The BoE is seen leaving rates unchanged, though traders are pricing in more rate cuts in 2026.
- Japan’s Fiscal woes keep the JPY bulls on the sidelines ahead of the February 8 snap election.
The GBP/JPY cross extends the previous day's late pullback from the 215.00 psychological mark, or a fresh high since January 2008, and drifts lower during the Asian session on Thursday. Spot prices, for now, seem to have snapped a four-day winning streak and currently trade around the 213.70 region, down nearly 0.25% for the day, amid some repositioning ahead of the key central bank event.
The Bank of England (BoE) is scheduled to announce its policy decision later today and is widely expected to keep interest rates on hold amid supportive fundamentals. Traders, however, are still pricing in the possibility that the UK central bank will lower borrowing costs at least two more times in 2026. Hence, the market focus will remain glued to MPC vote distribution and the post-meeting press conference, where comments from BoE Governor Andrew Bailey will influence the British Pound (GBP) and provide some meaningful impetus to the GBP/JPY cross.
In the meantime, some follow-through US Dollar (USD) buying is seen weighing on the GBP. The Japanese Yen (JPY), on the other hand, might continue with its relative underperformance amid worries about the country's financial health on the back of Prime Minister Sanae Takaichi's expansionary fiscal plans and political uncertainty ahead of the snap election on February 8. This might hold back traders from placing aggressive bearish bets around the GBP/JPY cross, warranting some caution before confirming that spot prices have topped out in the near term.
Economic Indicator
BoE's Governor Bailey speech
Andrew Bailey is the Bank of England's Governor. He took office on March 16th, 2020, at the end of Mark Carney's term. Bailey was serving as the Chief Executive of the Financial Conduct Authority before being designated. This British central banker was also the Deputy Governor of the Bank of England from April 2013 to July 2016 and the Chief Cashier of the Bank of England from January 2004 until April 2011.
Read more.Next release: Thu Feb 05, 2026 12:30
Frequency: Irregular
Consensus: -
Previous: -
Source: Bank of England
- USD/CHF drifts higher to around 0.7780 in Thursday’s early European session.
- Nomination of Kevin Warsh as Fed chair provides temporary support to the US Dollar.
- US-Iran nuclear talks set for Oman on Friday.
The USD/CHF pair holds positive ground near 0.7780 during the early European session on Thursday, bolstered by renewed US Dollar (USD) demand. Analysts expect the Greenback’s recovery will be short-lived as traders remain concerned about the Federal Reserve’s (Fed) independence.
The USD rebounds after US President Donald Trump nominated former Fed governor Kevin Warsh as Fed chair last week. Traders anticipate a slower pace of interest rate cuts under his tenure and a focus on shrinking the Fed's balance sheet.
However, doubts over the US central bank's independence resurfaced following recent Trump comments. The US president said on Thursday that he would have passed on Kevin Warsh as his nominee to lead the US central bank if Warsh had expressed a desire to hike interest rates.
"For most of the year, including the next few weeks, the dollar is likely to be choppy," said Jane Foley, head of FX research at Rabobank. "We still don't think the market has fully put to bed concerns about Fed independence and credibility."
Traders will closely monitor the developments surrounding the US-Iran negotiations later this week. Iranian and US officials confirmed on Wednesday that talks between their countries would be held in Oman on Friday. Any positive signs from a meeting could undermine the safe-haven currencies, such as the Swiss Franc (CHF) and create a tailwind for the pair in the near term.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.
- EUR/GBP edges up to near 0.8652 ahead of the monetary policy announcement by the BoE and the ECB.
- Both the ECB and the BoE are expected to leave interest rates unchanged.
- The BoE is anticipated to retain its gradual monetary easing guidance.
The EUR/GBP pair trades slightly higher to near 0.8652 during the late Asian trading session on Thursday. The pair edges up as the Pound Sterling (GBP) underperforms ahead of the monetary policy announcement by the Bank of England (BoE) at 12:00 GMT.
The BoE is expected to leave interest rates unchanged at 3.75%, with a 7-2 majority, as it reduced borrowing rates in its last meeting, and guided that the monetary policy will remain on a “gradual downward path”. Therefore, investors will pay close attention to the monetary policy statement and Governor Andrew Bailey’s press conference to get fresh cues on the interest rate outlook.
The United Kingdom (UK) central bank is expected to reiterate gradual monetary easing as employment conditions have remained weak and officials have been confident that price pressures would return to the 2% in the second quarter this year. However, the Consumer Price Index (CPI) accelerated in December after cooling down in October and November.
Meanwhile, the Euro (EUR) trades broadly stable ahead of the European Central Bank’s (ECB) interest rate decision at 13:15 GMT. The ECB is also expected to leave borrowing rates steady, as various officials have expressed that monetary adjustments are inappropriate unless there is a dramatic change in inflation and employment.
On Wednesday, the Eurozone’s preliminary Harmonized Index of Consumer Prices (HICP) data for January cooled down to 1.7% on an annualized basis, as expected, from 1.9% in December.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
- Gold meets with a fresh supply during the Asian session amid some follow-through USD buying.
- Dovish Fed bets could cap the USD and support the commodity amid geopolitical uncertainties.
- Traders now look to a duo of US labor market reports for a short-term impetus later this Thursday.
Gold (XAU/USD) attracts heavy selling following the overnight failure ahead of the $5,100 mark and dives to sub-$4,800 levels during the Asian session on Thursday. The US Dollar (USD) climbs to a two-week high and looks to build on its recent goodish recovery move from a four-year low, which, in turn, exerts some downward pressure on the commodity. Furthermore, the state-backed association reported a fall in China's gold consumption in 2025, which further contributes to the steep intraday decline.
On the geopolitical front, Iran and the US have agreed to hold talks in Oman on Friday, easing concerns about a broader military confrontation and further undermining the safe-haven Gold. Meanwhile, Wednesday's softer US ADP report pointed to labor market weakness and strengthened the case for interest rate cuts by the Federal Reserve (Fed). This might hold back the USD bulls from placing aggressive bets and act as a tailwind for the non-yielding yellow metal, warranting caution for aggressive bears.
Daily Digest Market Movers: Gold bears seem non-committal as dovish Fed bets and geopolitical risks offset firmer USD
- China's gold consumption in 2025 fell 3.57% to 950.096 metric tons, the state-backed association said on Thursday. Gold output using domestic raw materials climbed 1.09% year on year to 381.339 metric tons, the association added.
- US President Donald Trump’s nomination of Kevin Warsh as the next Federal Reserve chair fueled speculation that the central bank will be less dovish than expected. This assists the US Dollar in gaining some follow-through positive traction.
- Trump, however, said that he would have passed on Kevin Warsh as his nominee for the Fed Chair if he had expressed a desire to hike interest rates and that there was not much doubt that the US central bank would lower interest rates.
- Moreover, traders are still pricing in the possibility that the Fed will lower borrowing costs two more times this year. The bets were further reaffirmed by Wednesday's disappointing release of the US private-sector employment data.
- In fact, the Automatic Data Processing (ADP) Research Institute reported that private-sector employers added 22K new jobs in January, down from the previous month's downwardly revised reading of 37K and 48K consensus estimates.
- Separately, the US ISM Services PMI held steady at 53.8 in January and pointed to another robust expansion in the sector, providing a modest lift to the USD and exerting pressure on the Gold during the Asian session on Thursday.
- Meanwhile, Iran and the US remain at odds over the latter's demand that negotiations cover Tehran's missile arsenal and Iran's insistence on discussing only its nuclear program. This could further act as a tailwind for the safe-haven commodity.
- Analysts at UBS in a recent note rated gold as an attractive hedge and suggested that the bull market is not yet over, projecting that prices can rise to $6,200 an ounce (oz) by mid-2026, up nearly 25% from the current levels.
- Traders now look to Thursday's US economic docket, featuring the release of the delayed JOLTS Job Openings data and the usual Weekly Initial Jobless Claims. This, along with Fed speak, could influence the buck and the XAU/USD pair.
Gold needs to move back above $5,000 to shift the near-term bias in favor of bullish traders
The overnight failure ahead of the $5,100 mark and the subsequent downfall back the case for a further near-term depreciating move for the Gold. The Moving Average Convergence Divergence (MACD) line stands above the Signal line and above zero, while a contracting positive histogram suggests momentum is cooling. The Relative Strength Index (RSI) prints at 46, neutral and below its midline.
However, the 200-period Simple Moving Average (SMA) rises to $4,677.91, with the Gold price holding above it and retaining an upside bias. Measured from the $5,597.45 high to the $4,390.81 low, the 50% retracement level at $4,994.13 acts as initial resistance, and a breakout could target the 61.8% Fibonacci retracement at $5,136.51. A close above the said hurdle would strengthen the bullish tone and open the way for further recovery.
Near-term traction is mixed as MACD’s positive bias eases and RSI remains sub-50, keeping price action contained below nearby resistance. Failure to clear $4,994.13 would keep the range intact, while dips would be cushioned by the rising 200-period SMA around $4,677.91.
(The technical analysis of this story was written with the help of an AI tool.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
- Japanese Yen remains on the back foot amid concerns about Japan’s fiscal situation.
- Political uncertainty ahead of the national snap election further undermines the JPY.
- The USD preserves its recent recovery gains and lends support to the USD/JPY pair.
The Japanese Yen (JPY) languishes near a two-week low against a firmer US Dollar (USD) during the Asian session on Thursday and seems vulnerable to prolonging the downtrend witnessed over the past week or so. Investors remain worried about Japan's financial health on the back of Prime Minister Sanae Takaichi's expansionary fiscal plans. This, along with political uncertainty ahead of the snap election on February 8, has been another bearish development for the JPY and contributes to its relative underperformance.
Meanwhile, softer consumer inflation figures from Japan's capital city – Tokyo – released last week tempered bets for an early interest rate hike by the Bank of Japan (BoJ), further undermining the JPY. The USD, on the other hand, climbs to a two-week top and keeps the USD/JPY pair close to the 157.00 mark. That said, bets that the US Federal Reserve (Fed) will cut rates two more times in 2026 might cap the USD. Moreover, speculations that Japanese authorities would step in to stem further JPY weakness warrant caution for bears.
Japanese Yen bulls remain on the sidelines amid fiscal and political woes
- The incumbent Japanese Prime Minister Sanae Takaichi’s Liberal Democratic Party (LDP) is poised to score a strong victory in the lower house election on February 8. The outcome would give Takaichi a greater grip on Japan's parliament and more headroom to carry out her expansionary fiscal plans.
- Takaichi pledged to suspend the 8% consumption tax on food for two years as part of her election campaign, raising concerns about Japan’s fiscal outlook amid fears of debt-funded spending. This has been a key factor behind the Japanese Yen's relative underperformance since the beginning of this week.
- Moreover, Takaichi talked up the benefits of a weaker currency during a campaign speech. Although Takaichi later softened the stance, her comments raised doubts over whether authorities would intervene to support the domestic currency. This exerts additional downward pressure on the JPY.
- Meanwhile, data released last Friday showed that the headline Consumer Price Index (CPI) in Japan's capital city – Tokyo – fell last month to its weakest level since February 2022. This pointed to signs of softer demand-driven price pressure and reduced urgency for the Bank of Japan to tighten further.
- However, the Summary of Opinions from the BoJ's January meeting this week highlighted board members' hawkish view amid mounting price pressures from a weak JPY. Moreover, a private survey showed that Japan’s services sector growth accelerated in January at its fastest pace in almost a year.
- This suggests that a BoJ rate hike in the first half of 2026 remains on the table. In contrast, traders are pricing in the possibility of two more interest rate cuts by the US Federal Reserve this year, which caps the USD/JPY pair near the 157.00 mark, or a nearly two-week top set earlier this Thursday.
- In fact, US President Donald Trump said that he would have passed on Kevin Warsh as his nominee to lead the Federal Reserve if he had expressed a desire to hike interest rates. Trump further added that there was not much doubt that the US central bank would lower interest rates.
- The US Dollar, however, has climbed to a fresh high since January 23 in the wake of hawkish comments from Fed Governor Lisa Cook, saying that risks are skewed toward higher inflation. This could support the USD/JPY pair as traders now look to a duo of US labor market reports for a fresh impetus.
- Thursday's US economic docket features the delayed release of the JOLTS Job Openings data, along with the usual Weekly Initial Jobless Claims. This, along with speeches by influential FOMC members, would drive the USD and produce short-term trading opportunities around the USD/JPY pair.
USD/JPY could climb further amid breakout through 156.50 hurdle
The overnight breakout through the 156.50 confluence – comprising the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 61.8% Fibonacci retracement level of the 159.13-152.06 downfall – favors the USD/JPY bulls. The Moving Average Convergence Divergence (MACD) stands in positive territory while its histogram contracts, suggesting fading bullish momentum. The Relative Strength Index (RSI) prints 68.92, just below overbought.
This, in turn, suggests that the rebound could extend toward the 78.6% retracement at 157.64, while a rejection near resistance would risk a pullback to the 50% retracement at 155.60. A re-expansion of the MACD histogram and a firm RSI above 70 would strengthen the bullish case; otherwise, momentum looks prone to consolidation below resistance.
(The technical analysis of this story was written with the help of an AI tool.)
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
- US Dollar Index strengthens on hawkish Fed signals and expectations of a slower pace of rate cuts.
- Fed’s Cook said she won’t support further cuts without clearer evidence that inflation is easing.
- Markets weigh Warsh’s Fed chair nomination, noting his preference for a smaller balance sheet and fewer rate cuts.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, gains ground for the second successive session and is trading around 97.80 during the Asian hours on Thursday.
The Greenback strengthens on hawkish signals from the Federal Reserve (Fed) and expectations of a slower pace of US rate cuts. Fed Governor Lisa Cook said she would not back another cut without clearer evidence that inflation is easing, stressing greater concern over stalled disinflation than labor market weakness.
Moreover, the implications of Kevin Warsh’s nomination as Fed chair are citing his preference for a smaller balance sheet and a less aggressive approach to rate reductions. However, US President Donald Trump said he would not have nominated Warsh if he favored rate hikes. Trump further stated that there was “not much” doubt the US central bank would lower rates because “we’re way high in interest,” but now “we’re a rich country again.”
On the data front, the ADP Employment Change showed private payrolls increased by just 22K in January, well below market expectations for a stronger 48K reading and 37K (revised from 41K) prior. The weak print carried extra weight given the postponement of official government data. Institute for Supply Management (ISM) remained unchanged in January, with the ISM Services PMI holding steady at 53.8. The print, however, came in above analysts' expectations of 53.5.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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