Quiet start to the week, dollar recovery loses steam on MLK Day

Markets have started the new week in a calm manner and the US Dollar Index, which snapped a three-day losing streak on Friday, has gone into a consolidation phase above 95.00 early Monday. Bond and stock markets in the US will remain closed on Monday in observance of the Martin Luther King Jr. Day holiday. During the European trading hours, Germany’s Bundesbank will release its Monthly Report. Later in the day, Manufacturing Sales data from Canada and Bank of Canada’s (BOC) Business Outlook Survey will be featured in the North American economic docket.

In the early Asian session, the data from China revealed that the Gross Domestic Product (GDP) expanded by 4% on a yearly basis in the fourth quarter. Although this reading came in weaker than the 4.9% growth recorded in the third quarter, it surpassed the market expectation of 3.6%. Additionally, annual Industrial Production in December increased by 4.3%, compared to analysts’ estimate of 3.6%. On a negative note, Retail Sales rose by 1.7% in December (YoY), missing experts’ forecast of 3.7%. Despite these mixed data releases, the market mood remains upbeat with the Nikkei 225 and the Shanghai Composite indexes rising 0.75% and 0.7%, respectively.

Meanwhile, the People’s Bank of China (PBOC) announced on Monday that it has lowered the interest rate on 700 billion yuan ($110.19 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points to 2.85%. Additionally, the PBOC cut the 7-day reverse repo rate by 10 basis points to 2.1% from 2.2%.

EUR/USD lost its traction before reaching 1.1500 on Friday and closed in the negative territory. Early Monday, the pair is moving sideways in a narrow band above 1.1400.

GBP/USD closed higher for the fifth straight week despite Friday’s sharp retreat. The pair is staying relatively quiet below 1.3700 to start the new week.

After falling to its weakest level in three weeks at 113.50, USD/JPY staged a decisive rebound on the back of surging US Treasury bond yields on Friday. The pair continues to edge higher and was last seen rising 0.2% on the day at 114.44.

Gold turned south and erased a portion of its weekly gains on Friday as the benchmark 10-year US T-bond yield rose nearly 5% on the day. Nevertheless, XAU/USD managed to hold above key technical support levels that align near $1,800 and seems to have gone into a consolidation phase around $1,820.

USD/CAD registered weekly losses as the commodity-related CAD capitalized on rising oil prices. The barrel of West Texas Intermediate gained more than 7% last week. The pair has dipped below 1.2500 on Thursday but the renewed dollar strength allowed it to return to the mid-1.2500 area.

Bitcoin spent the weekend in a very tight range and started to edge lower toward $42,000 early Monday. Ethereum rose for three straight days but lost its recovery momentum after meeting resistance at $3,400. ETH is down more than 2% so far on the day and is trading below $3,300.

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