The US dollar is modestly higher as the North American trading session begins, with the biggest movements seen in GBP/USD and USD/CHF, where the dollar has gained approximately 0.17% against each. Meanwhile, EUR/USD is trading lower following weaker inflation data and disappointing Services PMI readings from Europe.
Europe’s economic data releases this morning revealed a faster-than-expected easing of inflation, which could reduce pressure on the European Central Bank (ECB) to maintain high interest rates. Germany’s preliminary Consumer Price Index (CPI) showed no month-on-month increase (0.0%), missing the 0.3% estimate. Similarly, France’s preliminary CPI rose just 0.1%, below the 0.2% forecast.
Service sector data was mixed. Spain stood out with strong growth, recording a Services PMI of 57.1 – reflecting robust expansion in its services sector. In contrast, major European economies such as Italy, France, and the UK experienced slower or weaker service activity than expected, though all remain above the critical 50-point mark indicating expansion. This slowdown broadly aligns with the disinflation trend seen in the CPI figures, supporting expectations that the ECB may lean toward easing monetary policy.
Key points for traders to note:
– Spain’s services sector growth is significantly stronger than other European countries.
– Most of Europe, excluding Spain and Germany, has seen slower service sector momentum.
– The softer inflation data implies that the ECB’s inflation challenge is easing, potentially shifting market focus toward economic growth concerns.
In the US, stock markets are showing mixed pre-market signals following yesterday’s strong performance that kicked off 2026. Futures indicate:
– Dow Jones slightly down by 10 points, consolidating after its record close.
– S&P 500 up by 4.5 points, aiming for a new milestone.
– Nasdaq up by 57 points, leading gains this morning.
Wall Street continues its pursuit of all-time highs. The Dow has reached new territory, while the Nasdaq still needs a 2.4% rally to surpass its October 2025 peak.
Yesterday’s rally was driven mainly by energy and banking sectors, influenced by geopolitical developments in Venezuela and optimism around US oil companies. Today, attention appears to be shifting towards technology and artificial intelligence (AI).
Notable pre-market movers include:
– Vistra Energy (VST), up 4.49%, benefiting from increased power demands linked to AI data centres.
– Microchip Technology (MCHP), rising 4.24%, buoyed by positive sentiment in semiconductors.
– Alumis (ALMS), surging 81% after announcing successful Phase 3 trial results for a psoriasis treatment.
– Chipmakers Micron (up 1.45%), Nvidia (up 0.8%) and AMD (up 0.75%) also saw gains. Nvidia’s CEO Jensen Huang highlighted at CES 2026 that their next-generation “Vera Rubin” AI platform is now in full production, promising five times the AI computing power of previous chips. He also introduced Alpamayo, an open-source software suite aimed at improving autonomous vehicle and robotics decision-making.
Yesterday’s winners were dominated by “Old Economy” giants, with Chevron and Halliburton gaining 5.10% and 7.84% respectively, catalysed by news of resumed US operations in Venezuela. The Russell 2000 small-cap index also outperformed, rising 1.6%, signalling broad risk appetite.
In fixed income markets, bond yields are trending modestly higher, reflecting European disinflation and geopolitical developments. The yield curve is bear-steepening, with long-term yields increasing faster than short-term ones.
Current Treasury yield context:
– The 10-year and 30-year yields are leading the modest upward move.
– The spread between the 10-year and 2-year remains positive at about 0.71%, traditionally indicating confidence in long-term economic growth.
– Yields dipped yesterday as markets sought safe-haven assets following the capture of Venezuelan leaders, but this has reversed in today’s trade as focus returns to domestic economic data.
– Despite rising yields, markets still price roughly a 25% chance of three quarter-point rate cuts from the Federal Reserve in 2026, with some analysts expecting a pause at the first meeting of the year.
For forex traders, these developments suggest potential dollar strength supported by mixed US equities performance and higher bond yields. Softer European inflation and service sector data may weigh on the euro and encourage traders to watch ECB policy signals closely. Commodity-linked currencies could react to shifts in energy sector dynamics amid geopolitical news.
Original Source: Greg Michalowski of investinglive.com
