The US Dollar (USD) Index closed the month of December with more than a 2.5% gain, marking the third consecutive month of positive momentum. Although the index remains slightly below a 26-month high it reached in 2024, it is still in a consolidation phase. The upcoming US economic calendar will highlight important data such as weekly Initial Jobless Claims and Challenger Job Cuts for December.
In the past 30 days, the US Dollar has shown strength against major currencies, with the table showing the percentage change against the Euro (EUR), British Pound (GBP), Japanese Yen (JPY), Canadian Dollar (CAD), Australian Dollar (AUD), and New Zealand Dollar (NZD). The US Dollar was the strongest against the New Zealand Dollar during this period.
Wall Street’s main indexes experienced a decline heading into the new year, leading to a boost in the USD. However, early Thursday saw US stock index futures trading positively, indicating an improvement in risk sentiment. Meanwhile, the EUR/USD pair lost around 0.5% on Tuesday but maintained levels above 1.0350. GBP/USD closed lower on Monday and Tuesday but held steady above 1.2500 early Thursday.
The Asian trading hours saw Chinese data revealing a decline in the Caixin Manufacturing PMI for December, indicating a weakening market expectation. Despite this, the AUD/USD pair edged higher on Thursday. Gold prices stabilized above $2,600, with XAU/USD trading above $2,630. USD/JPY corrected lower from its peak above 158.00 and remained slightly on the decline in the European morning.
In financial terms, “risk-on” and “risk-off” refer to the level of risk that investors are willing to take on during a specified period. A “risk-on” market signifies optimism and a willingness to invest in riskier assets, while a “risk-off” market showcases caution and a preference for safer investments. During “risk-on” periods, stock markets and commodities tend to rise, while currencies like AUD, CAD, NZD, RUB, and ZAR gain strength due to increased demand for commodities.
On the other hand, a “risk-off” market sees an increase in bond prices, particularly major government bonds, as well as a rise in Gold prices. Safe-haven currencies like USD, JPY, and CHF tend to benefit during these periods. The US Dollar is seen as a safe investment due to its status as the world’s reserve currency, while the Japanese Yen and Swiss Franc are favored for their capital protection features offered by strict banking laws in Switzerland.
