USD rises, records 3rd consecutive weekly gain

Today’s headlines

What’s happening: The US dollar rose on Friday and ended the week with gains.

What happened: Investors assessed the latest economic data from the US, which dampened speculations of the Federal Reserve cutting its benchmark interest rates in the near term.

Markets also monitored the ongoing geopolitical tensions, which impacted the greenback last week.

Why it matters: Data released last week showed weekly jobless claims coming in below market expectations, which signalled resilience in the US labour market. Meanwhile, some manufacturing surveys also topped market estimates.

Several Federal Reserve policymakers also highlighted the stability in the US labour market, while warning about upcoming inflationary risks.

Markets were already pricing in the Fed keeping interest rates unchanged in January, while the latest developments tempered speculations of a rate cut in June.

US President Donald Trump said that he may want to keep economic adviser Kevin Hassett in his current role. This raised expectations of Hassett not being appointed as the next Federal Reserve Chairman.

Markets expect Trump to name the upcoming candidate for the Fed Chairman in the coming weeks, with Jerome Powell’s term scheduled to end in May.

Trump also announced plans of reducing tariffs on imports from Taiwan, from 20% to 15%, after Taiwanese firms agreed to invest at least $250 billion to increase chip manufacturing capacity in the US.

Trump also signalled plans to delay US action in Iran, while reiterating his plans to pursue the acquisition of Greenland.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, rose around 0.1% to 99.38 on Friday. The index had surged to a six-week high of 99.49 in intraday trading on Thursday.

The EUR/USD forex pair fell around 0.1% to 1.1599 on Friday, while the GBP/USD slipped to 1.3379.

What to watch: Data on GDP growth rate, core PCE price index and S&P Global composite PMI, due to be released later this week, will be in focus. Analysts expect the S&P Global US composite PMI to rise to 52.8 in January from 52.7 in December.

The core PCE price index in the US, which rose by 2.8% year-over-year in September, is expected to grow by 2.7% in November. Analysts expect annualised GDP growth to accelerate to 4.3% in the third quarter, from 3.8% in the second quarter.

The markets today

European stocks in focus today ahead of inflation data

Context: Equity markets in Europe closed mostly lower on Friday as investors digested the latest economic reports.

Details: Data released on Friday showed that Germany’s annual inflation rate eased to 1.8% in December, from 2.3% in the previous month. The figure came in-line with market expectations.

The latest reading was the lowest in 15 months and fell below the European Central Bank’s 2% target midpoint for the first time since September 2024. This triggered speculations of the ECB not cutting its benchmark interest rate in the near term.

On the corporate front, shares of Daimler Truck Holdings were among the biggest losers, after the company reported an 8% decline in sales for 2025 due to weakness in demand from North America.

The French government announced that parliamentary discussions on the 2026 budget will be postponed from Friday to Tuesday next week, as lawmakers were unable to reach a compromise.

The STOXX Europe 600 Index slipped 0.03% to close at 614.38 on Friday. London’s FTSE 100 fell 0.04% to settle at 10,235.29, while Germany’s DAX 40 and France’s CAC 40 lost 0.22% and 0.65%, respectively.

What to watch: Investors await the release of economic data on the Eurozone’s inflation rate (1400 UAE Time) today. Analysts expect the Eurozone’s consumer price inflation to ease to 2.0% in December from 2.1% in the previous month, which would be the lowest reading since August 2025 and would return to the ECB’s target.

Other Markets: US trading indices closed lower on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.17%, 0.06% and 0.07%, respectively.

The news shaping the markets

Russia’s Ministry of Defence said that they had shot down 140 Ukrainian drones in a 24-hour period. The news sent the USD/RUB pair lower in forex trading this morning.

Canada’s housing starts jumped by 11% from the previous month to 282,439 in December. The figure coming in above market estimates of 260,000 exerted pressure on the USD/CAD forex pair.

Japan’s core machinery orders dipped 11% to ¥883.9 billion in November, compared to a 7% gain in the previous month. However, the USD/JPY pair fell in forex trading this morning.

Brazil’s producer prices declined by 0.37% in November. This coming in better than the previous month’s 0.47% plunge exerted pressure on the USD/BRL forex pair.

Australia’s Monthly Inflation Gauge jumped 1.0% in December, accelerating from 0.3% in the previous two months. However, the AUD/USD pair rose in forex trading this morning.

What else to watch today

Canada’s inflation rate (1730 UAE Time), new motor vehicle sales (1730 UAE Time), Bank of Canada’s business outlook survey (1930 UAE Time) and the BoC survey of consumer expectations (1930 UAE Time) as well as France’s 12-month BTF auction (1800 UAE Time), 3-month BTF auction (1800 UAE Time) and 6-month BTF auction (1800 UAE Time).