Focus on CPI and Corporate Earnings for Market Direction

The EUR/USD pair is trading in a narrow range near 1.1665 during early Asian hours on Tuesday, as markets absorb heightened political uncertainty surrounding the US Federal Reserve.

The US Dollar remains under pressure following reports that the Trump administration has threatened legal action against the Fed. According to Reuters, the US Justice Department is examining whether Fed Chair Jerome Powell may face criminal issues linked to his June testimony before the Senate regarding the central bank’s building renovation project. Powell has dismissed the allegations as a “pretext,” arguing they are intended to pressure the Fed into lowering interest rates.

Concerns over political interference in the US central bank have weighed on investor confidence in the Dollar, offering modest support to the euro.

On the euro side, expectations that the European Central Bank is nearing the end of its rate-cutting cycle are providing some underlying support to the single currency. ECB Vice President Luis de Guindos said last week that interest rates are currently at an appropriate level, while cautioning that geopolitical developments continue to pose “enormous uncertainty.”

Later on Tuesday, attention will turn to the release of US Consumer Price Index data for December. Both headline and core inflation are forecast to rise 2.7% year-on-year. A stronger-than-expected reading could help cap near-term losses in the Greenback.

Gold surged to a record high above $4,600 per ounce on Monday, while silver also hit a fresh peak, as investors flocked to safe-haven assets amid mounting political uncertainty surrounding a potential criminal probe into Federal Reserve Chair Jerome Powell by the Trump administration.

Gold gained more than 64% last year, marking its strongest annual performance since 1979. Silver outperformed even further, posting a record annual gain of 146.8%.

Investor demand has been bolstered by escalating pressure from the Trump administration on the Federal Reserve.

The Federal Reserve is widely expected to keep interest rates unchanged at its January 27–28 meeting, following cumulative rate cuts of 75 basis points last year. However, markets continue to price in two additional rate cuts later this year, a dynamic that has further supported demand for non-yielding assets such as gold.

Geopolitical risks also remained elevated, with President Trump weighing potential responses to a deadly crackdown on protests in Iran, following his removal of Venezuelan President Nicolás Maduro and renewed discussion around the possible acquisition of Greenland.

Oil prices extended their rally during Asian trading on Tuesday, rising for a fourth straight session as escalating unrest in Iran heightened concerns over potential supply disruptions.

In the previous session, Brent touched a more than seven-week high, while WTI rose to its strongest level in a month.

Geopolitical risks remained firmly in focus after Iran, a key OPEC producer, was hit by its largest wave of anti-government protests in years. The demonstrations have been marked by widespread violence and reports of heavy casualties as security forces moved to suppress unrest.

US President Donald Trump warned that Washington could consider military action if Iranian authorities continue to use lethal force against protesters. Trump also announced plans to impose a 25% tariff on any country “doing business” with Iran, a move aimed at tightening economic pressure on Tehran.

Supply concerns were not limited to the Middle East. Russia’s oil export infrastructure has faced repeated disruptions amid the ongoing war in Ukraine, with Ukrainian forces targeting key energy facilities and export hubs.

US equities closed at record highs on Monday, with gains in technology stocks helping to drive a broader market recovery despite rising concerns over Federal Reserve independence following the Trump administration’s latest escalation against Fed Chair Jerome Powell.

Markets continued to grapple with mounting political scrutiny of the Federal Reserve after Powell confirmed late Sunday that federal prosecutors have opened a criminal investigation related to his June testimony before the Senate Banking Committee on renovations to Fed office buildings. Powell suggested the move was politically motivated, tied to repeated demands from the Trump administration for aggressive interest rate cuts.Powell said the latest threat is not about his past testimony or Fed renovations, but about political pressure undermining the central bank’s ability to set interest rates independently.

Investor attention now turns to a busy slate of economic data, led by the release of US Consumer Price Index figures for December on Tuesday. Headline inflation is expected to remain steady, while core CPI is forecast to edge slightly higher.

Fourth-quarter earnings season is also set to begin in earnest, with major US banks among the first to report. JPMorgan Chase and Bank of New York Mellon are scheduled to release results on Tuesday, followed by Bank of America, Wells Fargo and Citigroup on Wednesday. Morgan Stanley, Goldman Sachs and BlackRock are due later in the week.