US Retail Sales to Rise in January, Eurozone inflation data awaited

In the early hours of Wednesday's European trade, the US dollar continued its climb as US consumer inflation remained elevated in January. Meanwhile, the sterling fell following a decline in the UK CPI rate. The Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher at 103.457.

The US consumer inflation for January, which came in at 6.4% year-on-year, was higher than the predicted 6.2% by economists. Additionally, the widely-watched year-on-year core figure, which excludes volatile items like energy and food, was 5.6%, above the anticipated 5.5%. These figures suggest that inflation remains challenging to tame even after a series of interest rate hikes, raising the probability that the Federal Reserve will have a higher endpoint for these increases than initially envisaged.

New York Federal Reserve President, John Williams, noted late Tuesday that despite some moderation in recent months, inflation remains too high, indicating that more hikes would be necessary.

FX Market: Sterling Falls Following Decline in UK CPI Rate

On Wednesday, GBP/USD encountered selling pressure and dipped to 1.2100 during early European trading. The UK's Office for National Statistics (ONS) reported that the annual Consumer Price Index (CPI) fell to 10.1% in January from 10.5% in December, leading to the decline of the Pound Sterling.

EUR/USD also fell by 0.2% to 1.0709 as the euro got caught up in the dollar buying ahead of a speech by European Central Bank President Christine Lagarde. Last month, Lagarde stated that the ECB would continue to raise interest rates quickly to slow down inflation, which remained too high. Traders will be keeping an eye on whether she has toned down this sentiment.

USD/JPY rose by 0.2% to 133.32, and traders are still digesting the nomination of Kazuo Ueda, an academic, as the next governor of the Bank of Japan. In contrast, the risk-sensitive AUD/USD fell by 1% to 0.691372.

Gold Prices Resume Downtrend, Bears Eye $1,825 Target

Meanwhile, gold prices have resumed their downtrend and have dropped below $1,850 in trading on Wednesday. That being said, $1,825 is a possible target for XAU/USD bears. As long as the price remains below the 50-day moving average, gold will remain vulnerable. If the previous day's low is broken, the next downside target is the falling trendline support at $1,838. Further declines could challenge the bullish commitments at the horizontal trendline support from the January 5 low at $1,825. For gold bulls to initiate any significant recovery towards the $1,870 supply zone, recapturing the 50-Daily Moving Average resistance at $1,860 is critical.

Traders Brace for Key Economic Data Releases

As the middle of the week approaches, traders are gearing up for an array of key economic data releases. Here's a look at some of the most important events that are expected to impact the financial markets.

Starting with Europe, the Consumer Price Index (CPI) and Harmonized Index of Consumer Prices (HICP) for January will be released at 11:00 GMT. Both the MoM and YoY figures are expected to remain unchanged from their December levels. However, any surprises in the data could lead to increased volatility in the euro currency.

European Consumer Price Index and Industrial Production Figures to be Released

Later in the day, the Eurozone will release industrial production figures for December, which will provide insight into the state of the manufacturing sector. The seasonally adjusted MoM figure is expected to come in at -0.8%, while the YoY figure is expected to show a decline of -0.7%. Additionally, the Eurozone's trade balance for December will also be released, with both the seasonally adjusted and non-seasonally adjusted figures expected to show a deficit.

In the UK, the DCLG House Price Index for December will be released at 11:30 GMT. The YoY figure is expected to increase from November, which could provide some support for the pound.

US Retail Sales and Manufacturing Sector Figures to Impact Markets

In the US, there will be several key data releases throughout the day. The New York Empire State Manufacturing Index for February will be closely watched by investors, as it provides an early glimpse into the health of the manufacturing sector in the US. Retail sales figures for January will also be released, with the MoM figures expected to show a significant increase from December. This could provide a boost to consumer sentiment and drive market optimism. In addition, industrial production figures for January will also be released, with the MoM figure expected to show a modest increase.

Finally, the Energy Information Administration will release crude oil stockpile data for the week ending February 10, which could impact oil prices and the broader energy sector.