MARKET UPDATE
Asia FX muted, dollar dull as rate-cut bets persist.
Most Asian currencies tread water on Friday, while the dollar saw little strength as traders looked to U.S. interest rate cuts this year despite a stronger inflation reading for December.
Some positive data from China also helped sentiment towards the region, as Chinese exports grew more than expected, while consumer price index (CPI) inflation picked up slightly in December.
The Chinese yuan rose 0.1%, while the Australian dollar- which has heavy trade exposure to China, added 0.3%.
The Japanese yen firmed 0.3% after recovering sharply against the dollar on Thursday. Markets still expect the Bank of Japan to reiterate its ultra-dovish stance later this month.
Other data also pointed to sustained weakness in the Japanese economy, with the country’s current account falling more than expected in November.
The U.S. dollar took little support from overnight data that showed U.S. CPI inflation grew slightly more than expected in December which, coupled with recent signs of resilience in the labor market, gives the Fed less impetus to begin trimming rates early.
The dollar index and dollar index futures fell 0.1% each in Asian trade after ending Thursday’s session unchanged.
Oil prices jump nearly 2%.
Oil prices rose sharply in Asian trade on Friday after U.S.-led forces launched airstrikes against the Iran-backed Houthi group in Yemen, ramping up concerns over more disruptions to Middle East supplies.
The U.S. military carried out airstrikes against multiple Houthi-controlled areas of Yemen late-Thursday, media reports said. The strikes came shortly after Iran seized an oil tanker with Iraqi oil in the Gulf of Oman.
Tensions with Iran and the Houthi attacks saw several shipping operators steer clear from the region, which pointed to potential delays in crude shipments through the Suez Canal.
The Israel-Hamas war, which is at the heart of recent instability in the Middle East, also showed no signs of stopping.
Gold prices rise as M.east-driven safe haven demand offsets CPI shock.
Gold prices rose on Friday as an escalation in the Middle East crisis ramped up safe haven demand, which also helped the yellow metal gain despite stronger-than-expected U.S. inflation data.
U.S. and British forces launched a series of strikes against the Iran-aligned, Houthi group in Yemen, in response to the group’s attacks on ships in the Red Sea. The move also marked a widening in the Israel-Hamas war, which was seen as a key motivator of recent Houthi aggression.
The move ramped up safe haven demand for gold, given that increased geopolitical risks usually drive investors towards more traditional havens. It also helped bullion prices firm despite a stronger U.S. inflation reading.
Spot gold rose 0.3% to $2,034.78 an ounce, while gold futures expiring in February shot up nearly 1% to $2,038.80 an ounce by 00:14 ET (05:14 GMT).
US inflation surprises to the upside, but rate-cut bets persist
While gold prices saw some strength on Friday, they were still set to end the week marginally lower, amid uncertainty over the path of U.S. interest rates.
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