USD/JPY: The dollar fell against the Japanese yen after data showing an expected increase in U.S. consumer prices in December did not give new impetus to the Federal Reserve’s policy normalization efforts. The U.S. dollar index, which tracks the dollar’s exchange rate against six major currencies, fell to its lowest level since Nov. 10. The index, which is up 6.3 percent in 2021, is down about 1 percent for the week, matching its worst weekly reading in eight months. Additionally, the risk-off trading in the global indices offers support to the safe-haven yen, collaborating with the downside in the pair. Aggressive Fed’s tightening expectations spurred by hawkish Fedspeak weigh on the risk-sensitive equity markets worldwide.
GBP/USD: Sterling hit an 11-week high against the weakening dollar as investors await a Bank of England rate hike in February to support the pound and see limited risks related to Prime Minister Boris Johnson’s scandal. The dollar lost ground against most competing currencies after data showed that U.S. inflation in December was no higher than expected, prompting traders to cut overcrowded long positions. FOMC Chairman Jerome Powell’s cautious remarks about reducing the balance sheet soon after the first rate hike hurt the dollar earlier in the week. Wednesday’s inflation report, which revealed that the annual Consumer Price Index (CPI) climbed to 7% in December as expected, made it difficult for the currency to shake off the bearish pressure.
XAU/USD: Gold has been under pressure despite the sell-off in the U.S. dollar, which has marked a fresh low as per DXY. The price of the U.S. dollar has been undermined by some less hawkish comments of late, including both the Federal Reserve chair, Jerome Powell, and Philly Fed President Patrick Harker. Gold has otherwise been on the backfoot due to such a hawkish outlook at the Fed. However, the varied responses in the markets to the Fed could play into the hands of the gold bugs in time to come.