The U.S. Dollar faced persistent selling pressure this week, as its corrective decline gained momentum following U.S. inflation data in December that aligned with market expectations. The Consumer Price Index (CPI) print did little to alleviate speculation about a potential rate cut by the Federal Reserve later this month, leaving the Greenback vulnerable.

The U.S. Dollar Index (DXY) dropped to fresh five-day lows, breaking below the critical 109.00 support level. Investors appear increasingly optimistic about the possibility of monetary easing, with key economic data, including Retail Sales, Initial Jobless Claims, and other indicators like the Philly Fed Manufacturing Index and Business Inventories, taking the spotlight this week.

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Currency Markets Overview

EUR/USD

The Euro managed to break above the 1.0300 resistance level early in the session, buoyed by initial USD weakness. However, the pair’s momentum faded later, resulting in modest losses by the day’s end. Market participants now turn their attention to the release of Germany’s final inflation rate and EMU’s Balance of Trade results, alongside insights from the ECB Accounts.

GBP/USD

The British Pound extended its winning streak for a third consecutive session, briefly crossing the 1.2300 mark as the Dollar struggled. Thursday brings a busy UK economic docket, with key reports on GDP, Industrial and Manufacturing Production, Construction Output, and the Balance of Trade expected to provide further direction.

USD/JPY

The Japanese Yen saw significant gains, with USD/JPY retreating to four-week lows below the 156.00 level. This movement reflects the broader pullback in the U.S. Dollar and declining U.S. yields. Japan’s Producer Prices data, set for release soon, will likely shape the pair’s next move.

AUD/USD

Risk sentiment continued to favor the Australian Dollar, which climbed to six-day highs near 0.6250. Traders are closely watching the Australian labour market report for further cues on the economy and monetary policy.

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Commodities Spotlight

Crude Oil (WTI)

WTI prices resumed their upward trajectory, trading near recent peaks just above $79.00 per barrel. Strong demand expectations and a weaker Dollar have contributed to this rally.

Gold and Silver

Gold maintained its bullish tone, benefiting from the Greenback’s decline and softer U.S. yields. The precious metal hovered around the $2,700 mark per ounce on Wednesday. Meanwhile, Silver extended its recent gains, breaking above the critical $30.00 per ounce level, underscoring strong investor appetite for safe-haven assets.

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Market Outlook

The U.S. Dollar remains under pressure as traders increasingly anticipate a potential rate cut by the Federal Reserve. Economic data releases, including Retail Sales and Jobless Claims, will be closely monitored for further clues on the Fed’s next steps. Meanwhile, risk assets and commodities are enjoying a supportive environment amid a weaker Greenback and improving market sentiment.