### United States
The US dollar is holding firm against most G10 currencies, indicating a mood of consolidation in the markets. With Trump’s inauguration set for Monday and US markets closed for Martin Luther King Day, there is anticipation of immediate actions post-inauguration. While the yen has pared some of yesterday’s gains, the market is on edge for a possible BOJ rate hike next week. In the US, retail sales data impacted the Dollar Index, which reached session highs before reversing lower. Despite this, the index remains in a consolidation phase, trading within yesterday’s range. The Federal Reserve’s recent discussions have highlighted concerns about the deficit trajectory and the importance of Fed independence, but the market reaction has been muted. The recent PPI and CPI data suggest a modest acceleration in the PCE deflator, with core figures remaining steady. Upcoming housing starts and industrial production data will be crucial for shaping Q4 GDP estimates.
### Eurozone
The euro managed to settle last week around $1.0245 after a six-week decline. A close above this level would signify one of the rare weekly gains since September’s end. Despite this stabilization, the euro remains fragile and vulnerable to potential disruptions, including those possibly initiated by the US. While some news appears priced in, the narrowing spread between US and German bond yields offers some support. However, selling into rallies remains a preferred strategy among traders.
### United Kingdom
Sterling continues to lag among G10 currencies, exacerbated by softer inflation and weaker data. Despite some gains, the pound remains vulnerable, especially after disappointing retail sales data, which showed a decline. The pound broke initial support but remains above $1.2100. With declining retail sales, the possibility of a BOE rate cut seems increasingly likely, with market confidence in a cut growing recently.
### China
The US dollar is pressing the upper limit of its band against the onshore yuan, showing minimal changes in the PBOC’s reference rate. Recent GDP figures indicate a slight growth above expectations, yet many remain skeptical about the data’s accuracy. Retail sales data and the slowing decline in property sales suggest a mixed outlook for China’s economy. Still, US retail sales have outpaced China’s, adding to the complexity of the economic narrative.
### Japan
Earlier today, the dollar briefly dipped below JPY155 for the first time in a month amid speculation of an imminent BOJ rate hike. The market largely expects a 25-basis point hike shortly, barring market turbulence related to the US political climate. The swaps market indicates another hike isn’t expected until much later in the year.
### Canada
The Canadian dollar has been relatively flat, caught within a tight range for over a week. The recent rise in oil prices has offered little support to the loonie, as it faces broader uncertainties, including potential US trade policy shifts. Despite these challenges, the Canadian currency has shown resilience.
### Australia
The Australian dollar has rebounded from recent lows, pausing a prolonged six-week slide. Market sentiment suggests a reduced likelihood of an immediate RBA rate cut, and technical levels indicate some room for maneuvering.
### Mexico
The Mexican peso has weakened throughout the week, illustrating its vulnerability amid unfolding political and economic narratives. Initiatives from President Sheinbaum to counter American nationalism highlight Mexico’s strategic positioning in terms of trade, particularly with the US. The peso has retreated against the dollar but finds some initial support around current levels.
