Market sentiment is cautious early Friday as investors await the monthly U.S. and Canada employment data and a U.S. Supreme Court update on President Donald Trump’s tariff powers. Despite the caution, the U.S. Dollar (USD) is supported by a sharp narrowing in the U.S. trade deficit, stronger employment data, and an upward revision to U.S. Gross Domestic Product (GDP).
Donald Trump garnered headlines after stating that he instructed representatives to purchase $200 billion in mortgage-backed securities (MBS), effectively proposing Quantitative Easing (QE) by presidential directive. Although markets refer to this as QE, buying MBS through government channels is more akin to fiscal policy. The move strengthens expectations that policy will become more populist as the US moves deeper into the 2026 election cycle. With Trump’s approval ratings under pressure, more fiscally expansionary measures are likely in the coming months, which should eventually weigh on the USD.
Elsewhere, USDJPY ignores strong Japanese data showing household spending rose 2.9% year-on-year (YoY) in November and surged 6.2% month-on-month (m/m). While this points to short-term resilience in consumption, the broader outlook is weaker as real wages fell 2.8% y/y, continuing to erode purchasing power and complicating the Bank of Japan (BOJ) outlook.
Additional pressure on the yen came from renewed concerns over China restricting rare-earth and magnet exports to Japan, linked to Taiwan-related disputes. Japanese officials said the issue would be raised with the Group of Seven (G7) partners and US counterparts, adding geopolitical risk to JPY trading.
In China, inflation data showed the Consumer Price Index (CPI) rose 0.8% y/y in December, the fastest pace since early 2023, lifting full-year 2025 inflation to 0.0% and helping Beijing avoid outright deflation. However, the Producer Price Index (PPI) fell 1.9% y/y, extending factory-gate deflation and underscoring weak domestic demand, keeping expectations for further policy support alive.
Geopolitical tensions remain elevated. Trump told the New York Times that Taiwan is “up to” Xi Jinping but said he would be “very unhappy” if Beijing moved against the island. Meanwhile, Iran imposed internet shutdowns as protests intensified, prompting Trump to warn of possible U.S. action. These developments, along with uncertainty over tariffs, cap risk appetite. Asia-Pacific equities are mostly higher, but gains are limited as investors wait for US payrolls data and the Supreme Court ruling.
On Thursday, the USD was broadly stronger, underperforming only the Canadian dollar (loonie). The US posted its smallest trade deficit since 2009, with the October goods and services trade balance at -$29.4B versus -$58.9B expected, while October wholesale inventories rose 0.2% as expected. Although the data is from October and somewhat stale, it drove a sharp upward revision in growth estimates. The Atlanta Federal Reserve (Fed) Q4 GDPNow forecast jumped to 5.4% from 2.7%.
Labor market data reinforced USD strength. Initial Jobless Claims for the week ending January 3 came in at 208K versus the 210K estimate, up 8K from the prior week, which was revised to 200K. The four-week moving average fell to 211.8K, the lowest since April 27, 2024, confirming underlying labor market firmness.
A New York Fed survey showed one-year consumer inflation expectations rising to 3.4% from 3.2%, while three-year and five-year expectations stayed at 3.0%. Job-finding expectations fell to a record low, while the perceived probability that U.S. stock prices will be higher in 12 months edged up to 38.0%.
In Europe, European Central Bank (ECB) vice-presidential hopeful Mario Centeno, Governor of Banco de Portugal, said Europe faces “structural uncertainty” from trade tensions, high sovereign debt, and rapid economic change. Although he offered no policy guidance, his comments reinforce expectations of continuity rather than abrupt shifts in ECB strategy.
In the UK, sterling gains look premature. Commerzbank warned against quickly pricing in improved UK–UK-European Union relations, noting that better access to the EU single market would be slow, conditional, and politically costly, creating downside risks for the British pound (GBP), especially against the euro.
Oil markets drew attention as unrest in Iran intensified. Reports of phone and internet shutdowns to curb protests signaled rising instability, helping oil prices erase losses from the previous two days.
Against this backdrop, the U.S. Dollar Index (DXY) fluctuates near a one-month high after a three-day rally. Gold prices lack a clear direction but are set for a weekly gain. EURUSD falls for a fourth straight day, GBPUSD remains under pressure after three days of losses, and USDJPY hits a two-week high on a four-day winning streak. AUDUSD and NZDUSD head for weekly losses, USDCAD rises for a ninth consecutive day to a six-week high, crude oil trims part of its biggest daily jump since late October, and cryptocurrencies, along with Asia-Pacific shares, drift lower after a mixed Wall Street close and cautious market mood.
Despite the latest improvement in Eurozone Consumer Confidence, Industrial Production, Producer Price Index (PPI), and Unemployment Rate, EURUSD continues to fall for the fourth consecutive day and trades near a one-month low at press time. The weakness is likely linked to comments from European Central Bank (ECB) policymaker Mario Centeno, mentioned earlier, which reinforced concerns over structural uncertainty in the region.
Elsewhere, GBPUSD also records a four-day losing streak as worries over worsening European Union–United Kingdom (EU–UK) relations and potential challenges to the United Kingdom economy combine with a broadly stronger U.S. Dollar (USD).
Meanwhile, USDJPY overlooks positive Japan data and rises for the fourth straight day to a two-week high, supported by renewed China–Japan tensions and growing doubts over near-term Bank of Japan (BoJ) interest rate hikes.
AUDUSD and NZDUSD remain under pressure from a firmer U.S. Dollar (USD), ongoing China-related concerns, and a lack of major domestic developments. As a result, both pairs head for weekly losses, with AUDUSD extending a three-day decline and NZDUSD falling for a fourth straight day.
In contrast, USDCAD continues to rise despite the already stronger USD seen on Thursday. The pair climbed to a six-week high and is up for a ninth consecutive day. Market focus remains firmly on the Canadian dollar (loonie) as traders await today’s U.S. and Canada employment report, the first clean labor market readings following the U.S. government shutdown.
Gold price stays largely sidelined early Friday as markets remain cautious ahead of the U.S. monthly employment data, the University of Michigan (UoM) Consumer Sentiment and Inflation Expectations, and the Supreme Court’s decisions on President Donald Trump’s tariff powers. Despite the lack of near-term direction, the yellow metal is set for a weekly gain as traders seek safety amid broader macroeconomic uncertainty. In addition, gold’s strong year-to-date performance and solid institutional demand continue to support XAUUSD.
Although news from Iran and discussions around Venezuela and Russia helped WTI crude oil post its biggest daily jump since late October on Thursday, the black gold pulled back early Friday. The decline is driven by demand concerns, especially from China, a firmer U.S. Dollar (USD), and renewed worries about the Organization of the Petroleum Exporting Countries Plus (OPEC+) and Russia increasing supply and returning more fully to the energy market.
Elsewhere, cryptocurrencies stay under pressure due to the stronger USD and a mixed market mood, even though institutional buying continues to support digital assets. As a result, Bitcoin (BTC) and Ethereum (ETH) are set for weekly losses, extending their year-to-date declines.
Meanwhile, Asia-Pacific equities edge lower, tracking a mixed Wall Street close and ongoing macroeconomic concerns.
Friday’s economic calendar features Eurozone Retail Sales, U.S. housing data, University of Michigan (UoM) Consumer Sentiment and Inflation Expectations, along with the U.S. and Canada monthly employment data.
On Trump tariffs, Treasury Secretary Bessent said the White House would reconstitute tariffs using other authorities if the Supreme Court restricts the President’s use of the International Emergency Economic Powers Act (IEEPA) in the Learning Resources case. Although alternatives are available, they involve more red tape and longer delays compared with IEEPA.
Rising geopolitical tensions, combined with recently strong U.S. data, are challenging the dovish Federal Reserve (Fed) bias and supporting further gains in the U.S. Dollar (USD). This backdrop may pressure major currencies, cryptocurrencies, and equities. However, gold and silver could stay firm due to their safe-haven appeal, while crude oil may give back part of its biggest daily jump since late October.
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