As traders cover short positions, the dollar rises. Wall Street applauds Trump's AI initiatives and Netflix's earnings. As gold rises and approaches a record high, yen traders await the BoJ's decision; the 25 basis point increase is nearly fully priced in.

 

The dollar decline halts while uncertainty around Trump continues.


The US dollar is still gaining little today after recovering versus the majority of the other major currencies on Wednesday. The comeback, however, lacks a discernible cause. It's possible that traders covered their most recent short positions, which were sparked by news reports and expectations that Trump might not impose tariffs as harshly as first thought.

 

Although there was no official announcement or agreement following Trump's inauguration, the new US president did threaten Canada, Mexico, China, and Europe once more. His intention to impose 25% taxes on Canada and Mexico and 10% on China on February 1 is the only significant information that traders are aware of. However, it is anticipated that federal authorities will finish a thorough investigation of trade-related matters by April 1.

 

Having said all of that, traders' early cutoff of dollar short positions indicates that there is still some degree of market fear, which is understandable given Trump's history of erratic behaviour. As a result, any fresh headlines implying that he is adopting a "shock and awe" approach might exacerbate concerns about the damage to the world economy, a return of inflation, and ultimately a slower rate-cut trajectory by the Fed. Investors are currently projecting rate reduction of 40 basis points in 2025, which is a little more aggressive than the Fed's 50 basis point projection.

 

Nasdaq rises the most while the S&P 500 reaches a new record high.


With the S&P 500 setting a new record high and the Nasdaq gaining the most, Wall Street saw respectable gains yesterday.

In addition to President Trump's objectives for artificial intelligence, investors applauded Netflix's record number of subscribers, which was demonstrated by the company's stock rising by almost 10%. Trump revealed a $500 billion plan to invest in private-sector AI infrastructure through a partnership with SoftBank, OpenAI, and Oracle.

All of this indicates that investors are still prepared to price in future AI growth prospects in spite of the exorbitant valuations, which might maintain the current upward trend and provide a floor beneath any tariff-related corrections.

 

Gold continues to defy gravity.


Gold kept on moving northward, approaching its own peak. Even though stock traders' appetites have improved, some market players were drawn to gold because of its safe-haven qualities, given the high level of uncertainty surrounding Trump's objectives. The bullion's upward trajectory is also being supported by central bank purchases and inflation hedging techniques.

 

BoJ is anticipated to raise and concentrate on forward guidance.

 
The BoJ ruling is expected to be the main topic of discussion tonight during Friday's Asian session. Investors pencilled in a 95% likelihood of a 25bps rate hike at this meeting due to accelerating inflation, rising wages, hawkish rhetoric from BoJ members, and Trump's softened attitude on tariffs.


Therefore, a rate hike by itself is unlikely to be a significant market mover for the yen because it is nearly completely priced in. The statement and Ueda's comments will probably draw traders' attention right away in an attempt to learn more about the Bank's future plans following this ruling.

 

Only one more 25 basis point rate hike by December is what traders are betting on, so any indication that officials are open to doing more might help the yen. However, a more cautious approach that implies the Bank would rather hold off on making decisions on whether additional hikes are necessary until more information is available could be disappointing. Concerns about intervention are expected to reappear if the yen declines.