Forex Today: US Dollar returns amid renewed recession fears, hawkish Fed speakers

What you need to take care of on Thursday, January 19:

The US Dollar ended Wednesday with gains against most major rivals, reverting early losses that saw it trade at fresh multi-month lows against most major rivals. The Bank of Japan (BoJ) announced its monetary policy at the beginning of the day, triggering quite a volatile reaction. The central bank decided to maintain its benchmark rate at -0.10%, and the JGB yield target unchanged at 0.00%, with an upper limit of 0.50%. BoJ’s Governor Haruhiko Kuroda then noted that they will maintain their ultra-loose monetary policy until achieving sustainable, stable inflation while adding   that there was “no need to further expand bond target band.”

Global yields plunged, initially weighing on the American Dollar, later reflecting risk aversion and rising alongside the Greenback. Softer-than-expected US data revived recession fears. The US Producer Price Index (PPI) increased at an annual pace of 6.2%, declining from 7.3% in November. On the other hand, December Retail Sales contracted by 1.1% MoM, while Industrial Production declined 0.7% in the same month, both missing the market expectations. On a positive note, MBA Mortgage Approvals for the week ended January 13 were up a whopping 27.9%, as interest rates dropped to their lowest point in months.

Wall Street started the day with modest gains but ended up collapsing, with the Dow Jones Industrial Average roughly 500 points down in the day.

The EUR/USD pair hit a multi-month high of 1.0886 but settled at around 1.0790. On the other hand, GBP/USD jumped to 1.2435 following the release of UK inflation figures. The Consumer Prices Index (CPI)  rose at an annualized pace of 10.5% in December, below the 10.7%  posted in November. The pair later retreated on demand for safety towards the 1.2330 price zone.

European Central Bank  policymaker Francois Villeroy de Galhau said on Wednesday that it is “too early to speculate about what we will do in March.” His words partially offset speculation the ECB would hike rates by 25 bps in March.

St. Louis Federal Reserve’s President James Bullard said US interest rates have to rise further to ensure that inflationary pressures recede. Also, Fed’s Loretta Mester, president of the Federal Reserve Bank of Cleveland, welcomed actions to tame inflation, while Fed’s Esther George said that the central bank must restore price stability, “that means returning to 2% inflation.” Overall, Fed speakers maintained their hawkish stance and hinted at more rate hikes ahead.

The AUD/USD pair peaked at 0.7063 but settled in the red at 0.9640. The USD/CAD pair approaches the 1.3500 level. Finally, the USD/JPY pair soared to 131.57 but trimmed most of its intraday gains to end at around 128.80.

Gold changes hand at $1,903 a troy ounce, while the negative momentum of US equities weighed on oil prices. The barrel of WTI trades at $70.50.