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US Dollar finds its feet amid cautious markets

Here is what you need to know on Tuesday, January 17:

The US Dollar is building on the previous recovery this Tuesday, as risk sentiment remains tentative following the release of China’s growth numbers. China’s Q4 GDP topped forecasts but expanded at the second-slowest pace since the 1970s. China’s GDP expanded by 2.9% in Q4 YoY, official data released by the National Bureau of Statistics (NBS) showed on Tuesday, above the 1.8% consensus forecasts and slowing from the 3.9% pace in the third quarter. China’s economy grew by 3.0% YoY in 2022. China’s December Retail Sales YoY, dropped 1.8% vs. -7.8% expected and -5.9% previous while the country’s Industrial Production came in at 1.3% YoY vs. 0.5% estimated and 2.2% prior.

Investors are digesting the Chinese data, turning anxious ahead of the critical Bank of Japan (BoJ) policy decision due on Wednesday. Meanwhile, the US Treasury statement that Treasury Secretary Janet Yellen will set her first face-to-face meeting with Chinese Vice Premier Liu He on January 18 in Zurich also keeps markets unnerved. The Asian stocks are a mixed bag, undermined by losses in Chinese stocks while the Japanese benchmark index, the Nikkei 225, sees a relief rally ahead of the BoJ decision. The US S&P 500 futures are down 0.11% on the day.

Across the G10 FX space, the USD/JPY pair keeps its corrective upside intact at around 129.00 amidst the BoJ’s continued efforts to defend its yields policy. The BoJ offered to buy JGBs once again earlier in the Asian session.

AUD/USD and NZD/USD are holding onto the recovery gains amidst upbeat Chinese economic data and ahead of the scheduled US-China talks. USD/CAD is flirting with lows below 1.3400, as the Canadian Dollar is capitalizing on a 1% rally in the WTI price. The US oil is nearing the $80 mark amid an encouraging demand outlook for 2023.

Following Friday’s negative price action, EUR/USD renewed the best levels in nine months at 1.0874 early Monday before retreating to near 1.0850. 

GBP/USD is trading sideways in a narrow range of around 1.2200, awaiting the UK employment data for a fresh direction. “The UK ILO Unemployment Rate is likely to remain intact at 3.7% for the three months ending in November. It’s worth noting that the Claimant Count Change figures came in as 30.5K in November with the Claimant Count Rate of 3.9% during the stated period,” FXStreet Analyst Anil Panchal explains. The UK wages data will also hold the key ahead of Wednesday’s inflation data.

EUR/USD remains supported above 1.0800, despite a minor correction in the US Dollar and positive US Treasury bond yields across the curve. Hawkish commentary from the European Central Bank officials continues to underpin the Euro. In a Financial Times interview early Tuesday, ECB Chief Economist Philip Lane said that “interest rates do have to be higher than they are now.”

Gold price is holding lower ground just above the $1,900 threshold but the downside appears capped amid dovish Fed rate hike expectations.

Bitcoin is back above the $21,000 level, reversing losses so far this Tuesday while Ethereum stays in a familiar range around the $1,550 mark.

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