The foreign exchange market is experiencing a period of cautious stability as the US dollar consolidates within the previous day's trading range. Market activity remains subdued amid ongoing geopolitical and economic developments. The implementation of US tariffs on steel and aluminum, along with retaliatory actions from the EU, Canada, and China, remains a key focus. Meanwhile, bond markets face slight pressure, with 10-year yields rising modestly across Europe and the US. Equity markets present a mixed picture, as European indices manage to extend gains while US futures indicate a downward trend. Commodity markets show strength, with gold nearing record highs and oil prices briefly touching a four-day peak before retreating.

Asia Pacific Markets

The Japanese yen has seen notable volatility, with the dollar fluctuating between JPY146.55 and JPY151.30 in recent days. The yen remains under pressure due to weaker-than-expected economic data, including slower wage growth, disappointing household spending figures, and a downward revision of GDP growth for the fourth quarter. The Bank of Japan maintains its interest rate at 0.50%, though market expectations for year-end now stand at 0.80%.
Meanwhile, the Chinese yuan has experienced fluctuations, with the dollar recovering after hitting a four-month low. 

European Markets

The euro’s recent rally slowed after reaching $1.0950, slightly surpassing its previous peak from the US election day. After a strong rise of approximately 5.6% since late February, the euro is now consolidating within a narrower range. Momentum traders may face risks of market corrections as the currency stabilizes. Eurozone industrial production declined by 0.8% in January, though upcoming fiscal support is expected to influence economic conditions.
In the UK, the British pound briefly approached $1.2990 before retreating. Sterling has been on an upward trajectory in four of the last five weeks, but recent trading activity has been more restrained. The euro has also shown resilience against the pound, rebounding from GBP0.8400 to GBP0.8430. Investors now await key UK economic data, including January’s GDP report, which is projected to show minimal growth following December’s 0.4% expansion. Industrial output and the services sector are both expected to show signs of slowing.

American Markets

After declining to nearly 103.20 earlier in the week, the US Dollar Index is stabilizing within the previous day’s range. A breakout above the 104.25-104.40 zone would improve the technical outlook, following a steep decline of over 4% since the start of the month. The latest US inflation data suggests further moderation, with producer price index (PPI) figures expected to follow the consumer price index (CPI) in showing slight declines. However, uncertainties remain regarding the personal consumption expenditures (PCE) deflator due to methodological differences. While markets anticipate no rate cuts at the upcoming Federal Reserve meeting, investors will closely analyze economic projections. The labor market appears to be weakening, with weekly jobless claims rising to 221,000, marking an increase from the previous year.