Dollar consolidates gains ahead of key US inflation data

The dollar extended its Fed-fueled rally on Thursday and the US Dollar Index reached its highest level since July 2020 before going into a consolidation phase on Friday. The European economic docket will feature eurozone sentiment data and German growth numbers. Later in the session, the US Bureau of Economic Analysis (BEA) will publish the December Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation, data alongside Personal Spending and Personal Income figures.

The greenback outperformed its rivals on Thursday as investors continued to price an aggressive Fed policy tightening. The upbeat US data, which showed that the economy expanded at an annualized rate of 6.9% in the fourth quarter, helped the dollar preserve its strength in the second half of the day. Nonetheless, Wall Street’s main indexes closed in the negative territory, reflecting the negative impact of the Fed’s announcements on risk sentiment. US stocks futures indexes trade flat early Friday, pointing to a slight improvement in market mood. 

Meanwhile, the ongoing conflict between Russia and Ukraine continue to weigh on market sentiment. US President Joe Biden said on Thursday that there was a “distinct possibility” that Russia could invade Ukraine in February. On another concerning note, Russia noted that there was “little ground for optimism” following the US’ dismissal of Russia’s demands.  

EUR/USD lost more than 100 pips on Thursday and touched its lowest level since June 2020 at 1.1132. The dollar’s valuation continues to drive the pair, which was last seen moving sideways around 1.1150.

GBP/USD fell below 1.3400 for the first time in more than a month on Thursday before recovering modestly. On a weekly basis, the pair is down more than 1%.

Gold lost more than 1% for the second straight day on Thursday and broke below several key support levels. XAU/USD is trading slightly below $1,800 early Friday.

USD/JPY jumped above 115.00 for the first time in two weeks and fluctuates in a narrow channel around 115.50. The benchmark 10-year US Treasury bond yield is up nearly 1%, helping the pair preserve its bullish momentum.

Bitcoin continues to move up and down in a tight range below $40,000 ahead of the weekend. Ethereum is struggling to make a decisive move in either direction as it trades near $2,500.

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