Markets Brace for NFP as Disappointing Retail Data Pressures USDX

The euro weakened on Tuesday, slipping below the 1.1900 handle against the US dollar as hawkish remarks from Federal Reserve officials offset softer-than-expected US economic data. Despite disappointing US Retail Sales figures, the greenback found support after policymakers pushed back against expectations for near-term interest-rate cuts.

Recent economic releases highlighted growing strain on US consumers amid elevated prices and rising labor-market uncertainty. December Retail Sales were flat on a monthly basis, falling short of market expectations for a 0.4% increase and slowing sharply from November’s 0.6% gain.

Nevertheless, comments from Federal Reserve officials reinforced a cautious policy stance. Dallas Fed President Lorie Logan noted that monetary policy remains near neutral, warning that inflation risks remain skewed to the upside and warrant continued vigilance. She emphasized that inflation concerns outweigh downside risks to economic growth at this stage.

Similarly, Cleveland Fed President Beth Hammack adopted a firm tone, stating that inflation must return to the 2% target before any further rate adjustments are considered. She added that inflation remains elevated and highlighted ongoing uncertainty surrounding tariff policies.

In contrast, the European economic calendar was light, though European Central Bank President Christine Lagarde reiterated confidence that euro-area inflation will converge toward the 2% target over the medium term.

Looking ahead, the Eurozone agenda includes speeches from ECB policymakers Mario Cipollone and Isabel Schnabel. In the US, investor attention will focus on the release of Nonfarm Payrolls, the unemployment rate, and remarks from Fed officials Jeffrey Schmid, Michelle Bowman, and Beth Hammack.

Gold prices edged higher during the Asian session on Wednesday, reclaiming ground above the $5,050 level as sustained US dollar weakness—driven by dovish Federal Reserve expectations—continued to support the non-yielding metal. While the softer greenback remains a key tailwind, broader risk-on sentiment has tempered upside momentum, with traders largely sidelined ahead of the highly anticipated US Nonfarm Payrolls report.

Recent US data strengthened expectations for looser Federal Reserve policy after December Retail Sales fell short of forecasts, reinforcing signs of slowing growth and softer labor-market conditions. Markets are now pricing in nearly 58 basis points of Fed rate cuts in 2026, keeping the US dollar under pressure. Concerns over the Fed’s independence—sparked by political remarks and comments from Fed officials—further weighed on the greenback, despite relatively hawkish rhetoric from regional policymakers, supporting a constructive outlook for gold.

Despite the supportive macro backdrop, gold bulls remain cautious, preferring to await fresh direction from the upcoming US employment report. The NFP release is expected to play a pivotal role in shaping near-term Federal Reserve policy expectations and, by extension, US dollar dynamics.

Oil prices advanced during Asian trading on Wednesday, recovering part of the previous session’s losses as investors weighed rising geopolitical uncertainty in the Middle East and improving demand prospects tied to China’s upcoming Lunar New Year holiday. A softer US dollar ahead of key US economic data also provided modest support to crude markets.

Crude markets drew support from renewed uncertainty surrounding US–Iran relations, with traders pricing in a modest risk premium on fears of potential supply disruptions. Iranian officials said on Tuesday that recent nuclear talks with Washington had allowed Tehran to assess the seriousness of US intentions, adding that diplomatic engagement between the two sides would continue.

The comments followed talks held last week regarding Iran’s nuclear program, shortly after US President Donald Trump ordered the deployment of multiple warships to the Middle East. Although both sides signaled some progress, sentiment was unsettled after the US issued warnings to commercial vessels navigating the Strait of Hormuz—one of the world’s most critical oil transit routes. Adding to market unease, reports indicated that the US administration is considering deploying a second aircraft carrier near Iran, a move that could significantly escalate regional tensions and heighten concerns over disruptions to Iranian crude exports.

Oil prices also found support from expectations of stronger fuel demand in China ahead of the Lunar New Year holiday. This year’s celebrations, marking the Year of the Horse, begin on February 17 and will be accompanied by an extended nine-day public holiday running from February 15 to 23.

US equity markets ended Tuesday on a mixed note as investors digested a heavy slate of corporate earnings, while Treasury yields fell after softer economic data fueled demand for bonds. Weak retail sales reinforced expectations for easier monetary policy, supporting fixed-income markets even as equities showed signs of fatigue following a recent rally.

The US 30 edged up to a record close extending its run above the historic 50,000 level reached last week. In contrast, the US 500 and US Tech 100 slipped amid profit-taking in large-cap technology shares.

Market participants pointed to rotation beneath the surface. Semiconductor stocks, which had recently powered the rally, saw renewed selling, while gains in software and services appeared to lose momentum.

Despite Tuesday’s mixed session, Wall Street remains supported by a strong advance earlier in the week, driven largely by a rebound in technology stocks tied to the artificial intelligence-led expansion in data center investment.

Attention remained firmly on fourth-quarter earnings, with investors increasingly selective in their response to results. Shares of Coca-Cola declined after the beverage giant posted a quarterly revenue miss ahead of an upcoming CEO transition. In contrast, Spotify surged after the streaming leader easily topped earnings expectations, supported by robust user growth.

On the macro front, investor focus is turning to key US labor market and inflation data that were delayed due to the recent government shutdown. The monthly Nonfarm Payrolls report is now scheduled for Wednesday, followed by the January Consumer Price Index on Friday. Both releases are expected to be pivotal in shaping expectations for the Federal Reserve’s policy outlook and the potential timing of rate cuts later in the year.