Geopolitics drive market action ahead of key data releases

Escalating geopolitical tensions helped the safe-haven US Dollar (USD) find demand late Tuesday and allowed the US Dollar Index to erase the majority of its daily losses. As market participants assess the latest headlines, US stock index futures and major currency pairs stay relatively quiet. The European Central Bank (ECB) will release its Financial Stability Review later in the session and Bank of England (BOE) Governor Andrew Bailey will testify before the UK Treasury Select Committee. In the second half of the day, October Retail Sales and Industrial Production data will be featured in the US economic docket. Finally, investors will pay close attention to October Consumer Price Index (CPI) figures from Canada.

Reports of two Russian-made missiles hitting Poland, near the Ukraine border, and killing two people triggered a flight to safety. The latest developments, however, suggest that missiles that hit Poland may have been fired by Ukrainian forces to counter other incoming Russian missiles. Russian officials called the Polish incident an attempt to provoke a direct military clash between NATO and Russia.

Meanwhile, China’s National Health Commission (NHC) said on Tuesday that they have confirmed 17,772 new Covid cases across the country, its highest total since April 2021. The NHC added that Guangzhou, a city of 19 million, accounted for more than a quarter of the cases.

EURUSD climbed to its highest level since late June at 1.1480 on Tuesday but gave back almost all of its gains to close at 1.0350. The pair edges higher early Wednesday but continues to trade below 1.0400. On Tuesday, the data published by Eurostat revealed that the Euro area economy grew at an annualized rate of 2.1% in the third quarter as expected.

The UK’s Office for National Statistics (ONS) reported on Wednesday that the annual Consumer Price Index (CPI) jumped to 11.1% in October from 10.1 in September. This reading surpassed the market expectation of 10.7%. Additionally, the Core CPI, which strips volatile food and energy prices, stayed unchanged at 6.5%, compared to analysts’ estimate of 6.4%. Despite the hot inflation figures, the Pound Sterling struggled to find demand and GBPUSD was last seen trading in its tight daily range below 1.1900.

USDCAD fluctuates in a tight range below 1.3300 early Wednesday. At its latest policy meeting, the Bank of Canada (BOC) raised its policy rate by 50 basis points (bps), surprising markets that had been pricing in a 75 bps hike. The annual CPI in Canada is forecast to remain unchanged at 6.9% in October.

USDJPY fell to its lowest level since late August below 138.00 on Tuesday but regained its traction on Wednesday. The pair was last seen trading in positive territory slightly below 140.00.

Gold climbed to its strongest level in three months at $1,786 on Tuesday but closed the day below $1,780. With the benchmark 10-year US Treasury bond yield rising more than 1% in the European morning, XAUUSD edges lower while managing to hold above $1,770 for the time being.

Bitcoin registered modest daily gains on Tuesday but seems to have lost its bullish momentum early Tuesday. As of writing, BTCUSD was trading flat on the day slightly below $16,900. Ethereum continues to trade in a narrow range at around $1,250 for the second straight day on Wednesday.

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