Stronger dollar shakes the markets, US data in focus

In response to the Federal Reserve chairman's signal to gradually tighten policy, Asian shares plunged to their lowest point in nearly 15 months, short-term U.S. yields climbed to 23-month highs and the dollar strengthened.

Following the Fed announcement euro sank to its two-month low against the dollar around 1.12. It is likely that divergent central bank policy will limit any EUR rallies, and that the EUR/USD downtrend will continue at least into the March ECB meeting.

Gold suffered its wretched session in 18 days yesterday and extended losses overnight. Currently trading around 1811, it appears that bears are looking to push this back to 1800, near its 200-day EMA. Silver is currently down for a fifth consecutive day, falling to its 50-day EMA.

In most cases, seeing gold fall along with stocks signals that things might not be progressing so well, but all of this has to do with the Fed raising rates, the dollar surging higher with the yields, and everything else is heading in the opposite direction.

In the equity market, traders had to quickly find their way around their red monitors as markets continued to sell off overnight. Several indices in China and Japan fell by more than 2%. However, most benchmarks fell over -1%. Nikkei was clearly underperforming due to the stronger yen as well.

Events of today

The U.S. will release advance data on Quarterly GDP growth on Thursday with an annualized growth rate of 5.2% expected. Recent weeks have seen economic activity slow down due to rising Coronavirus cases caused by the Omicron variant.

Data on personal income and expenditures for December are also included in the economic calendar for today. Due to the steep decline in retail sales last month, markets expect personal spending to fall sharply.

Thursday will see the release of the weekly report on initial jobless claims that jumped to a three-month high last week.

Increasing jobless claims along with the sharp drop in retail sales in December might suggest the economy is losing momentum. However, this will not prevent the Fed from hiking rates in March.