The US Dollar (USD) extended its rally for a second consecutive day on Wednesday, buoyed by mixed US economic data and speculation surrounding President-elect Donald Trump’s potential tariff plans. Investors also kept a close eye on Federal Reserve policymakers’ speeches and the upcoming national day of mourning in honor of former President Jimmy Carter, which will see US stock markets closed and bond markets operating on shortened hours on Thursday.

Tariff Speculation Lifts the USD

According to a report from CNN, President-elect Trump is considering declaring a national economic emergency to introduce a new tariff program. This news prompted a cautious market sentiment, strengthening the USD as investors sought safe-haven assets amid the uncertainty.

The USD Index, which tracks the greenback against a basket of major currencies, ended Wednesday in positive territory for the second straight day, closing slightly above 109.10.

US Economic Data Paints a Mixed Picture

The US labor market data released on Wednesday showed a modest slowdown in private sector employment growth. The private sector added 122,000 jobs in December, falling short of the 140,000 market expectation. However, weekly Initial Jobless Claims provided a glimmer of hope, declining to 201,000 for the week ending January 4, down from 211,000 the previous week.

Additionally, the Federal Reserve’s December meeting minutes revealed a cautious stance among policymakers. Most officials acknowledged heightened inflation risks and emphasized the need for a measured approach to further monetary policy easing.

Major Currency Movements

• EUR/USD: The Euro struggled against the Dollar, with EUR/USD posting small losses on Wednesday. Despite better-than-expected German industrial production data, which showed a 1.5% monthly increase in November (beating the forecast of 0.5%), the pair hovered near 1.0300 in early Thursday trading.
• GBP/USD: The British Pound faced significant bearish pressure, dropping nearly 1% on Wednesday. The pair hit its lowest level in over a year, trading below 1.2300 in the European session on Thursday.
• USD/JPY: The Dollar saw modest gains against the Japanese Yen for a third consecutive day, although bullish momentum appeared to wane. USD/JPY held above 158.00 but showed signs of slight retreat on Thursday.

Global Market Highlights

Economic data from China indicated that annual inflation, measured by the Consumer Price Index (CPI), slowed to 0.1% in December from 0.2% in November. Meanwhile, Australian retail sales grew by 0.8% in November, but AUD/USD showed limited reaction, slipping 0.3% on the day to trade near 0.6200.

Gold Shines Amid Uncertainty

Gold extended its recovery on Wednesday, touching a multi-week high of $2,670. The precious metal maintained its position above $2,660 early Thursday, trading within a narrow range as markets awaited further cues.

Outlook

The US Dollar remains well-supported by cautious market sentiment, bolstered by speculation around tariff policies and mixed economic data. As the global financial landscape continues to evolve, traders will keep a close eye on upcoming data releases and developments in US economic policy for further direction.