Dollar strong, inflation pressures persist

The upcoming US Consumer Price Index (CPI) report is a key event this week

By Farah Mourad | 13 January 2025

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  • Oil prices rise, with WTI near $81.33 per barrel

  • Gold pulls back from recent highs around $2,700

  • EUR/USD to trade near 1.0215 for the fifth consecutive session of losses

The robust US jobs report released late last week has altered market perceptions regarding Federal Reserve policy. Investors previously anticipated the Fed's first rate cut in mid-2025, followed by an additional 25-basis-point reduction. However, futures markets now price in a more conservative 26-basis-point cut, likely delayed until Q4 2025.

This week’s market spotlight is firmly on the US Consumer Price Index (CPI) data set to be released on Wednesday. Analysts anticipate a continuation of inflationary pressures compared to the previous month's readings. Should the CPI reveal a stronger-than-expected rise, it could reaffirm the current market trajectory and shape expectations for future monetary policy.

Currencies

The US Dollar continues to strengthen, supported by robust December employment data. This has pressured the EUR/USD pair, which trades around 1.0215, marking its fifth consecutive session in negative territory. Expectations for the Federal Reserve to maintain its current policy stance at the January meeting are further bolstering the greenback.

The British Pound remains under selling pressure, with GBP/USD trading around 1.2125—its lowest level since November 2023. Bearish sentiment dominates, fueled by a strong Dollar and concerns over the UK’s economic outlook. However, slightly oversold technical conditions may limit further immediate downside.

Commodities

Oil markets are rallying, driven by fresh US and UK sanctions targeting Russian oil exports. Goldman Sachs suggests these tightened measures could push Brent crude prices above $85 per barrel. Following Friday's announcement of stricter sanctions, oil prices rose 2%, with WTI crude trading near $81.33 per barrel. Concerns over disrupted Russian supply chains to key markets like China and India are further supporting the bullish momentum.

Gold prices have retreated from their recent highs near $2,700 during Monday’s Asian session, snapping a four-day winning streak. Persistent geopolitical uncertainties and a cautious equity market environment provide some underlying support for gold, though investors remain focused on the upcoming US inflation data for clearer direction.

This week’s US CPI report holds the potential to reshape market dynamics, influencing risk sentiment across asset classes. Investors are closely watching how inflation figures could impact Fed policy, equity markets, and commodity prices. With geopolitical tensions and shifting rate expectations still in play, the week promises a mix of volatility and opportunity across markets.

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