Forex Today: Market movements expected as President Trump addresses Davos

Market Overview for Wednesday, January 21

As Wednesday unfolds, global financial markets are treading carefully, with attention focused on US President Donald Trump's upcoming address at the World Economic Forum in Davos. Market participants anticipate remarks regarding EU-US trade dynamics and ongoing disputes involving Greenland. Additionally, the US economic calendar highlights the release of December's Pending Home Sales data.

After an extended weekend, major US stock indices faced significant downward pressure, reacting to intensifying geopolitical uncertainties. On Tuesday, both the Nasdaq Composite and S&P 500 dropped by over 2%. The US Dollar Index also posted its second consecutive day of notable losses. However, by early Wednesday, futures for US equities edged slightly higher, while the USD Index remained stable above the 98.50 mark.

In the UK, the Office for National Statistics (ONS) announced that annual inflation, measured by the Consumer Price Index (CPI), climbed to 3.4% in December, surpassing both November’s 3.2% and market forecasts of 3.3%. On a monthly basis, CPI rebounded by 0.4% after a 0.2% decline in the previous month. Despite these figures, the GBP/USD pair continued to trade within a narrow range, remaining below 1.3450.

Gold extended its remarkable rally into Wednesday, reaching a fresh all-time high near $4,900. Although XAU/USD experienced a modest pullback during the European morning session, it held firm around $4,850, maintaining its positive momentum.

Silver is consolidating near $94.70 after posting slight gains on Tuesday, with price action remaining relatively stable.

After a two-day advance, EUR/USD is undergoing a mild correction but continues to trade above 1.1700 during Wednesday’s European session. European Central Bank (ECB) President Christine Lagarde noted that new tariffs are expected to have only a minor impact on inflation.

AUD/USD maintains its upward trajectory, trading just above 0.6750 early Wednesday. Investors are now looking ahead to Australia’s December employment figures, which are set to be released during Thursday’s Asian session.

USD/JPY is exhibiting limited movement, hovering near 158.00 in early Wednesday trading. Nonetheless, concerns are mounting over rising yields on long-term Japanese government bonds. According to MUFG analysts, “The Bank of Japan’s delayed response is contributing to selling pressure, and this trend may prompt the BoJ to adopt a more hawkish stance to steer inflation back to target. The yen remains particularly weak against non-dollar currencies, and ongoing volatility in the Japanese government bond market is likely to intensify yen selling in the near term.”