Dollar Holds Prior to U.S. Inflation Report (01.15.2025)

The dollar paused its rally ahead of the U.S. inflation report, impacting the Fed's rate-cut outlook.

Japanese Yen Continues to Face Pressure

The Japanese yen traded near 158 per dollar on Wednesday, staying close to its lowest levels since July of the previous year, when Japanese authorities intervened to support the currency. The yen continues to face pressure as investors await key U.S. inflation data, which could limit the potential for Federal Reserve rate cuts this year. Domestically, Bank of Japan Deputy Governor Ryozo Himino suggested earlier this week that the central bank may consider a rate hike at next week's policy meeting, though he noted that both domestic and global risks remain a concern despite generally favorable price developments and inflation expectations. On the economic front, a private survey showed a recovery in sentiment among Japanese manufacturers in January, mainly driven by improved conditions in the materials industries.

The key resistance level appears to be 158.60, with a break above it potentially targeting 160.00 and 161.00. On the downside, 154.90 is the first major support, followed by 153.40 and 152.40 if the price moves lower.  

Trump's Policies Weigh on Gold

Gold prices dropped to around $2,670 per ounce on Wednesday, reversing earlier gains as investors adopted a more cautious stance ahead of the US consumer inflation data. Any signs of rising inflation could lead to further adjustments in expectations for Federal Reserve rate cuts. On Tuesday, gold found some support after a weaker-than-expected US PPI report, sparking hopes that the Fed might have room for additional rate cuts this year.

With Donald Trump starting his second term next week, attention is being paid to his inflationary economic policies, particularly tariffs, which could strengthen the case for a more hawkish Fed. Higher borrowing costs raise the opportunity cost of holding non-interest-bearing gold, reducing demand for the metal. Additionally, rising energy service costs in Europe have weakened the argument for lower rates by the ECB.

Technically, the first resistance level will be 2725 level. In case of this level’s breach, the next levels to watch would be 2750 and 2790 consequently. On the downside 2660 will be the first support level. 2630 and 2600 are the next levels to monitor if the first support level is breached. 

GBP/USD Drops on UK Borrowing Concerns

The GBP/USD pair fell 0.09% to $1.2205, continuing to face pressure from rising borrowing costs in the UK and concerns about the country's fiscal health. With UK inflation data set to be released later on Wednesday, worries about domestic price pressures and a weak economy continue to weigh on the British pound. This adds to the pressure on UK finance minister Rachel Reeves, as she faces growing challenges in managing the nation's fiscal outlook.

The first resistance level for the pair will be 1.2265. In the event of this level's breach, the next levels to watch would be 1.2350 and 1.2460. On the downside 1.2100 will be the first support level. 1.2080 and 1.2000 are the next levels to monitor if the first support level is breached.

Silver Loses Ground with Inflation Concerns

Spot silver (XAG/USD) dropped 0.4% to $29.78 per ounce and continues to face pressure before the Federal Reserve's interest rate decisions. While gold extended gains on Tuesday following a weak PPI report, silver’s performance remains subdued as market participants remain cautious ahead of the Consumer Price Index (CPI) release. The outlook for silver, like gold, is tied to inflationary pressures and the potential actions on rate cuts.

Technically, the first resistance level will be 30.35 level. In case of this level’s breach, the next levels to watch would be 30.70 and 31.00. On the downside, 28.81 will be the first support level. 28.50 and 28.00 are the next levels to observe if the first support level is breached.