The U.S. dollar traded mixed on Tuesday as Treasury yields firmed, following new U.S. tariffs on metals and Federal Reserve Chair Jerome Powell’s testimony. Powell reiterated that the Fed remains in no rush to cut interest rates, reinforcing expectations that policy easing may be delayed beyond mid-2025.
Meanwhile, the global FX market reacted to various geopolitical and macroeconomic factors, including U.S.-China trade concerns, UK rate outlook, and market positioning ahead of the January U.S. CPI report.
Key Market Developments
🔹 U.S. Tariffs and Inflation Data in Focus
- U.S. President Donald Trump’s administration imposed 25% tariffs on steel and aluminum, set to take effect in March.
- Markets anticipate retaliatory measures from trade partners, though immediate FX reactions were muted.
- January CPI data (Wednesday) will be crucial in determining the Fed’s next move—a hotter-than-expected print could push Treasury yields and the dollar higher.
🔹 Powell’s Senate Testimony & Fed Outlook
- Powell emphasized that the U.S. economy remains strong, with low unemployment and inflation above the 2% target.
- Cleveland Fed President Beth Hammack reaffirmed the need to keep rates on hold for now.
- Markets currently price only 35 bps of Fed rate cuts for 2025, with no full cut expected until September.
🔹 Global FX and Market Reaction
- 🇪🇺 Euro (EUR/USD): Slight rebound (+0.2%), but remains below resistance at 1.0376, with downside risks fading.
- 🇬🇧 British Pound (GBP/USD): Gained (+0.4%) after BoE’s Catherine Mann downplayed expectations of rapid rate cuts.
- 🇯🇵 Japanese Yen (USD/JPY): Rose slightly but remains pressured near 152.76, as higher U.S. yields fuel further upside risks.
- 🇨🇭 Swiss Franc (USD/CHF): Weakened sharply after reports of U.S. engagement with Ukraine on rare earth metals, raising hopes of easing geopolitical tensions.
- 🇦🇺 Australian Dollar (AUD/USD): Slid (-0.7%) as commodity prices dipped, reflecting weaker Chinese demand prospects.
🔹 Bond Yields & Equities
- U.S. Treasury yields climbed, with 10-year yield back above 4.5%, providing support for the dollar.
- S&P 500 gained 0.07%, with mixed sector performances.
- Oil prices surged +1.3% amid supply concerns.
- Gold dipped (-0.05%), while copper sank (-2.46%), reflecting trade war concerns.
📌 Market Outlook
- All eyes on U.S. CPI data (Wednesday)—a strong print could reinforce higher-for-longer Fed rates.
- Tariffs remain a key risk, with potential retaliatory actions from China and the EU affecting risk sentiment.
- Yields remain a driver for USD strength, with further rate cut repricing possible.
- Market volatility expected ahead of Friday’s U.S. jobs report and key geopolitical updates.
For now, USD strength remains intact, with risk sentiment tied to inflation trends and central bank signals in the coming days.
