The dollar moved within narrow ranges on Wednesday, ahead of a series of US economic data releases that could shape Federal Reserve interest rate expectations, a factor traders view as more influential for currency markets than ongoing geopolitical tensions.

Markets largely ignored the deepening geopolitical divisions around the world, as equities continued to rise, while currencies and bonds showed little reaction following the US intervention in Venezuela and the arrest of President Nicolas Maduro.

Markets entered a wait-and-see mode ahead of a batch of US labor market data, including private-sector employment figures and job openings, due later in the day, ahead of the closely watched nonfarm payrolls report on Friday.

Ahead of the data, the dollar index edged slightly higher to 98.63 points.

Thierry Wizman, global foreign exchange and interest rate strategist at Macquarie Group, said:

“Traders seem comfortable with the rhetoric coming out of the United States as long as it does not imply the need for a direct military presence on the ground to govern Venezuela.”

He added: “A military invasion and a prolonged ground conflict could have triggered a sharp sell-off in the dollar, as seen during the Iraq and Afghanistan wars between 2002 and 2008.”

Investors are struggling to form a clear picture of the performance of the world’s largest economy following a record US government shutdown last year, which disrupted the collection and publication of key economic data.

Even so, investors remain convinced that the Federal Reserve will cut interest rates twice more during the current year. This expectation has weighed on the dollar, while growing divisions within the Fed and the approaching announcement by US President Donald Trump of his next nominee to chair the central bank have further complicated the outlook for US monetary policy.

The euro slipped slightly after declining the previous day, following a sharper-than-expected slowdown in German inflation in December, prompting traders to modestly scale back bets on an interest rate hike in early 2027.

Markets have priced in unchanged interest rates until 2026 since last summer, with expectations for policy tightening by the European Central Bank in 2027 as inflationary pressures rise due to German fiscal stimulus.

The single currency fell 0.10% to $1.1676, after dropping 0.28% on Tuesday.

In another development being monitored by traders, China on Tuesday banned exports of dual-use materials to Japan that could be used for military purposes, in the latest move by Beijing in response to remarks made by Japanese Prime Minister Sanae Takaichi in early November regarding Taiwan. Strategists said the move had little impact on foreign exchange markets.

The US dollar slipped 0.10% against the Japanese yen to 156.51.

The Australian dollar reached its highest level since October 2024 at $0.6766, after a mixed inflation report kept hopes of a near-term interest rate hike in check. The New Zealand dollar traded at $0.5783.

Jose Torres, chief economist at Interactive Brokers, commented on Wednesday’s data by saying: “The ADP monthly employment report will be the most influential, as a rise in the unemployment rate represents one of the key risks in the new year, alongside the possibility that massive investments in artificial intelligence fail to deliver outsized returns.”

Gold prices fell in European trading on Wednesday for the first time in four sessions, giving up the one-week high recorded earlier in Asian trade, amid renewed correction and profit-taking activity, and under pressure from a stronger US dollar.

A series of key US economic data releases are due later today, which are expected to provide strong clues on the future path of Federal Reserve monetary policy and US interest rates.

Price overview

• Gold prices today: Gold fell by 1.2% to $4,441.67, from an opening level of $4,494.79, after touching a session high of $4,500.45, the highest level in a week.

• At Tuesday’s settlement, the precious metal gained 1.05%, marking a third consecutive daily advance, supported by rising geopolitical tensions following the US strike in Venezuela.

US dollar

The US dollar index rose by 0.1% on Wednesday, extending gains for a second straight session and approaching a four-week high, reflecting continued strength of the US currency against a basket of major and minor currencies.

This advance comes as investors increasingly favor the dollar as one of the most attractive alternative investment assets amid elevated global geopolitical risks, and as one of the best available investment opportunities, particularly in light of a stream of weak economic data from Europe and China.

US interest rates

• Stephen Miran, a Federal Reserve governor whose term ends later this month, said on Tuesday that a sharp cut in US interest rates is needed to sustain economic growth.

• Minneapolis Federal Reserve President Neel Kashkari, a voting member of the rate-setting committee this year, said he sees a risk of a sharp rise in the unemployment rate.

• According to the CME FedWatch tool, markets are currently pricing an 84% probability that US interest rates will remain unchanged at the January 2026 meeting, versus a 16% probability of a 25-basis-point rate cut.

• Investors are currently pricing in two US rate cuts over the course of next year, while Federal Reserve projections point to just one 25-basis-point cut.

• To reassess these expectations, investors are closely watching a series of key US economic releases, including private sector employment data, job openings figures, and services sector activity.

Gold outlook

Capital.com analyst Kyle Rodda said prices are “not being driven heavily by fundamentals, as there is a lot of speculation,” noting that price action has largely been upward but remains characterized by two-way volatility. He added that the US dollar is also playing a role in pressuring prices.

SPDR Gold Trust

Gold holdings at SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose by around two metric tons on Tuesday, lifting total holdings to 1,067.13 metric tons.

The euro edged slightly higher in the European market on Wednesday against a basket of global currencies, trading within a narrow range against the US dollar, as investors refrained from building new positions ahead of the release of key inflation data in Europe and very important economic data from the United States.

Despite easing price pressures in Germany during December, markets continue to rule out any retreat by the European Central Bank from current interest rate levels this year, supported by the resilience of economic activity in the euro area, which has recently delivered performance exceeding expectations.

Price overview

• Euro exchange rate today: The euro rose by around 0.15% against the dollar to 1.1703, from the day’s opening level of 1.1688, after recording a low of 1.1684.

• The euro ended Tuesday’s trading down about 0.3% against the dollar, resuming losses that had paused the previous day during a recovery from a four-week low at 1.1659.

• These losses were attributed to data showing a sharper-than-expected slowdown in inflation in Germany and France, which eased inflationary pressure on policymakers at the European Central Bank.

US dollar

The US dollar index fell by 0.1% on Wednesday, reflecting a decline in the US currency against a basket of major and secondary currencies, as investors avoided opening new long positions ahead of key economic data from the United States.

Later today, a series of US data releases are due, including private sector employment figures for December, job openings at the end of November, and the Institute for Supply Management’s survey on services sector activity in December.

These data are expected to provide further evidence on the likelihood of the Federal Reserve continuing to cut US interest rates over the course of this year.

European interest rates

• Money markets continue to price the probability of a 25 basis point cut in European interest rates in February at below 10%.

• Traders expect the European Central Bank to keep interest rates unchanged throughout this year, especially if inflation remains close to its 2% target.

Inflation in Europe

To reassess the above expectations, investors are awaiting the release later today of headline inflation data for Europe for December, which will clarify the extent of inflationary pressures facing policymakers at the European Central Bank.

By 10:00 GMT, the annual consumer price index for Europe is due. Market expectations point to a rise of 2.0% in December, down from 2.1% in November, while core inflation is expected to remain at 2.4%, in line with the previous reading.

Euro outlook

Here at Economies.com, we expect that if inflation data come in cooler than currently anticipated by markets, the likelihood of European interest rate cuts this year will increase, which would imply renewed downward pressure on the euro’s exchange rate in the foreign exchange market.

The Australian dollar rose in the Asian market on Wednesday against a basket of global currencies, extending its gains for a fourth consecutive day against its US counterpart and reaching its highest level in 15 months, supported by a surge in global commodity and base metal prices.

These gains came despite data released today in Sydney showing a slowdown in inflation in Australia during November, easing inflationary pressure on policymakers at the Reserve Bank of Australia.

Price overview

• Australian dollar exchange rate today: The Australian dollar rose by 0.45% against the US dollar to 0.6767, the highest level since October 2024, from the day’s opening level of 0.6736, after recording a low of 0.6717.

• The Australian dollar ended Tuesday’s trading up 0.35% against the US dollar, marking its third consecutive daily gain, amid US stock indices climbing to new record highs.

Global commodity prices

Global commodity and metal prices are currently witnessing a fresh wave of record gains, driven by rising demand from major economies led by China and the United States, alongside geopolitical tensions that have reinforced investors’ shift toward base metals as a safe haven.

This rise is reflected positively on the Australian economy, which is one of the world’s leading exporters of iron ore, coal, and gold, as it helps boost the trade surplus and increase revenues for companies operating in the mining sector.

It also provides strong support to the government budget through higher fee and tax revenues, giving the Australian economy greater flexibility to cope with global inflationary pressures while maintaining stable growth rates.

Inflation in Australia

Data released on Wednesday by the Australian Bureau of Statistics showed that the headline consumer price index rose 3.4% year on year in November, below market expectations of a 3.6% increase, compared with a 3.8% reading in October.

The slowdown in Australian inflation exceeded expectations in November.

These data point to a slight easing of inflationary pressures on policymakers at the Reserve Bank of Australia. However, inflation remains above the bank’s medium-term target range of 2%–3%, which reduces the likelihood of an Australian interest rate cut in February.

Australian interest rates

• Following today’s data, market pricing for a 25 basis point cut in Australian interest rates in February remained steady around 33%.

• To reassess these expectations, investors are awaiting further data on inflation, employment, and wages in Australia ahead of the April meeting.