Risk sentiment stayed weak early Friday due to negative geopolitical and trade news and caution before the January U.S. Consumer Price Index (CPI). Weak U.S. equities also hurt confidence, helping the U.S. Dollar rise slightly and reduce weekly losses.
Tensions rose after Japan seized a Chinese fishing vessel inside its exclusive economic zone near Nagasaki and arrested its captain for allegedly avoiding inspection, adding strain to already tense Tokyo–Beijing relations amid trade and security disputes.
From China, new home prices fell 0.4% month-on-month and 3.1% year-on-year in January, the steepest annual drop in seven months. Prices declined in 62 of 70 surveyed cities, showing ongoing weakness in the property sector despite policy easing and removal of developer debt caps.
Geopolitical risks increased as the USS Gerald R. Ford carrier strike group was redirected from the Caribbean to the Middle East, joining the USS Abraham Lincoln in the Persian Gulf as pressure on Iran intensified. Oil prices reacted little as markets had already priced in the second carrier. The European Union Aviation Safety Agency extended its advisory for airlines to avoid Iranian airspace until March 31 due to elevated risk.
Talking about the U.S. data, weekly initial jobless claims came in at 227,000 compared to 222,000 expected. January existing home sales were 3.91 million versus 4.18 million expected. These releases caused little immediate reaction.
The bond market added to concerns as the 30-year bond auction cleared at 4.750% compared to 4.771% when-issued, marking the largest stop-through since Liberation Day. This indicated strong demand for bonds and suggested that fixed income markets may be starting to reflect the stress seen in equities.
In Japan, equities such as the Nikkei and Topix slipped after earlier weekly gains, following Wall Street’s Thursday losses. An adviser to Prime Minister Sanae Takaichi said the government does not need to appoint reflation supporters to the upcoming Bank of Japan board vacancies. He added that the Bank of Japan may have room to raise interest rates later this year, but is unlikely to act in March. This lowered expectations of a near-term rate hike and pressured the Japanese yen, pushing USD/JPY to 153.30. Later, Bank of Japan board member Tamura said inflation remains sticky, and the 2% target could be judged as achieved by spring. His more hawkish tone helped the yen recover, bringing USD/JPY down to around 152.85.
In New Zealand, the Business New Zealand Performance of Manufacturing Index, which is the Purchasing Managers’ Index (PMI), eased to 55.2 from 56.1 in January but continued to signal solid expansion. Inflation expectations were mixed ahead of the February 18 decision by the Reserve Bank of New Zealand (RBNZ), where policymakers are expected to keep rates on hold.
Oil also fell after comments from Trump and Netanyahu. Trump stated that a deal with Iran could be reached within the next month and that negotiations may last at least a month, though developments can change quickly.
Amid these plays, the U.S. Dollar Index (DXY) posts modest intraday gains by press time but faces a weekly loss. The U.S. Dollar’s latest rebound failed to challenge the gold buyers as the bullion bounced off the weekly low. That said, other major currencies drift lower, and so do the Antipodeans, while crude oil remains under pressure, and so do the cryptocurrencies. Meanwhile, the Asia-Pacific shares are weak, tracing Wall Street’s downbeat performance.
The U.S. Dollar’s gradual rise, along with rising geopolitical tensions, pressured EURUSD and GBPUSD, while helping USDJPY rebound from its two-week low. GBPUSD faced extra downside after mostly weak United Kingdom growth and activity data. At the same time, USD/JPY gained support due to challenges surrounding Bank of Japan (BoJ) rate hike expectations and mixed economic data from Japan.
Weak China data, rising geopolitical tensions, and caution before today’s U.S. Consumer Price Index (CPI) pressured the commodity-linked currencies, namely the Australian Dollar, New Zealand Dollar, and Canadian Dollar.
Falling oil prices, which are important for Canada as a major exporter, added further pressure. Softer inflation signals from New Zealand also challenged the hawkish stance of the Reserve Bank of New Zealand (RBNZ).
As a result, AUDUSD extended Thursday’s pullback from its three-year high, NZDUSD declined for the second consecutive day, and USDCAD recorded a three-day winning streak.
Gold and silver prices fell to a weekly low on Thursday due to negative market sentiment and a stronger U.S. Dollar. However, early Friday, both precious metals regained upward momentum as the risk-off mood drove investors back to traditional safe-haven assets.
Concerns about the Federal Reserve (Fed) independence and its difficulty in pausing rate cuts, along with continued buying from China, provided additional support to XAUUSD and XAGUSD ahead of the key U.S. Consumer Price Index (CPI) release.
West Texas Intermediate (WTI) crude oil is set for a second weekly loss and is falling for the second straight day, as markets expect a possible U.S.–Iran agreement that could reduce war risks. Still, the U.S. deployment of naval ships to the Middle East and statements from Trump are keeping energy traders cautious and alert.
In digital assets, cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) are in a four-week downtrend. Investors are showing less interest in crypto markets, and technical breakdowns are encouraging more selling.
On Thursday, equity selling started in software stocks, led by Applovin, which dropped 16 percent despite beating both revenue and earnings estimates. The weakness then spread to trucking and commercial real estate stocks, which fell about 20 percent during the day. Some stocks seemed to be pricing in a sudden recession, which contradicts the previously released strong non-farm payrolls report.
Overall, it was a troubling session for U.S. equity traders. Many stocks have declined by 10 to 20 percent, yet the S&P 500 Index remains only 3 percent below its record high.
Swiss Consumer Price Index (CPI), Eurozone Gross Domestic Product (GDP), and Employment Change data will be released before the U.S. Inflation data on Friday.
Traders will look to these reports for signals to support the recent hawkish Federal Reserve (Fed) stance after the strong Non-Farm Payrolls (NFP) report. Apart from that, headlines surrounding Iran, Trump tariffs, U.S. equities, and Fed independence will also be important to trace.
As the U.S. Dollar (USD), also called the greenback, remains strong on the back of upbeat economic data and a mixed risk outlook, a stronger U.S. CPI reading could further support USD buyers.
With the firm greenback, Gold and Silver may struggle to extend their recent rebound. Other major currencies will need positive risk-related news to challenge the USD. Meanwhile, equities and crude oil may see mild weakness, while cryptocurrencies could remain under pressure.
May the trading luck be with you!
