Forex Today: Dollar takes a breather ahead of US PPI data, Fedspeak

Here is what you need to know on Tuesday, January 14:

Following a mixed close on Wall Street overnight, markets witnessed a sluggish performance in Asian indices as Japanese markets reopened on a negative note.

However, risk sentiment shifted in favor of optimists after Chinese stocks rebounded the most in over two months, eyeing a press conference jointly hosted by the People's Bank of China (PBoC) and the State Administration of Foreign Exchange (SAFE) this Tuesday to see if Beijing will step up efforts to shore up the economy and defend its currency.

The risk recovery is fuelling a fresh leg lower in the safe-haven US Dollar (USD) in the early European trading hours, boosting forex majors' recovery paths. The Greenback lost ground late Monday after Bloomberg reported, citing people familiar with the matter, that advisors on US President-elect Donald Trump's incoming economic team are considering gradually implementation of tariffs, hiking them incrementally each month by 2% to 5%.

Markets are also resorting to profit-taking on the USD long positions ahead of the top-tier US Producer Price Index (PPI) inflation data and speeches from Fed policymakers John Williams and Jeffery Schmid for fresh cues on the world's most powerful central bank's interest rate path. Traders are pricing in 29 basis points (bps) of easing this year, less than the 50 bps the Fed projected in December, according to the CME Group's FedWatch Tool.

The benchmark US 10-year Treasury bond yield extends correction from its highest level since November 2023, adding to the downside in the Greenback.

Across the FX board, USD/JPY remains on the back foot near 157.50 after witnessing sharp moves in Asia in the wake of Bank of Japan (BoJ) Deputy Governor Ryozo Himino's commentary. Himino said the central bank will debate whether to raise rates next week as prospects of sustained wage gains heighten.  

AUD/USD clings to recovery gains at around 0.6200 amid risk-rally in Chinese stocks on stimulus hopes. However, the divergent policy outlook between the Fed and the Reserve Bank of Australia (RBA) and looming US-Sino trade risks keep the upside limited.

EUR/USD holds firm above 1.0250, recovering from 26-month lows of 1.0773 set on Monday. Broad US Dollar pullback and retreating US Treasury bond yields offset the recent dovish ECB-speak, boding well for the pair amid a risk-on mood. T

The Pound Sterling rejoices some gains above 1.2200 against the US Dollar correction. GBP/USD hit a 15-month low of 1.2100 on Monday, undermined by the UK's fiscal health and increased inflationary concerns under the Trump 2.0 era.

USD/CAD is off the low but remains below 1.4400 even as Oil prices retrace from three-month highs. WTI oil price is down 0.50% on the day, trading near $77 as of writing.

Gold price attempts another run to recapture the $2,700 in the European session on Tuesday, looking to resume the upside fuelled by the symmetrical triangle breakout on the daily chart.