The US dollar edged lower against the euro on Wednesday amid uncertainty over the Federal Reserve’s policy path, after the release of key labor market data was delayed due to a partial US government shutdown.

At the same time, the Japanese yen was on track for a fourth straight daily loss against the dollar ahead of national elections, as Prime Minister Sanae Takaiichi seeks voter support for higher spending, tax cuts, and a new security strategy expected to accelerate defense capacity building.

The dollar had jumped on Friday after President Donald Trump selected former Federal Reserve governor Kevin Warsh to lead the US central bank when Jerome Powell’s term ends in May, easing fears that the Fed could shift toward an overly dovish stance.

Warsh has argued that productivity gains from artificial intelligence could justify a more flexible monetary policy, while also calling for a reduction in the Federal Reserve’s balance sheet. This policy mix would likely steepen the yield curve, but leaves the overall direction of interest rates uncertain.

Late Tuesday, Trump signed a spending deal into law, ending a four-day partial US government shutdown, but the crucial employment report that was due on Friday will be postponed.

Antje Praefcke, FX analyst at Commerzbank, said the market has already ruled out a Federal Reserve rate cut in March and is pricing only two cuts by the end of the year.

She added that labor market data in particular would need to come in weak to revive rate cut expectations and pressure the dollar again, regardless of whether Warsh is Fed chair or not, noting that the ADP report due later in the session is a weak predictor of the official jobs report.

The dollar index, which tracks the US currency against six major peers, was broadly steady at 97.33.

The euro rose 0.13% to $1.1833 ahead of the European Central Bank policy meeting on Thursday, with investors watching for any comments about the impact of the single currency’s strength on the policy outlook.

The euro hit a four-and-a-half-year high of $1.2084 last week, while policymakers expressed growing concern over the pace of its gains, warning that further strength could push inflation lower at a time when price growth is already expected to undershoot the ECB’s 2% target.

ECB Vice President Luis de Guindos said last summer that an exchange rate around $1.20 per euro is acceptable, but levels above that could become more problematic.

Analysts said recent moves in the euro/dollar pair have been driven almost entirely by dollar sentiment, while interest rate differentials have taken a back seat.

The British pound rose 0.2% to $1.3727 ahead of the Bank of England meeting on Thursday. Both the ECB and the Bank of England are widely expected to keep interest rates unchanged.

The Japanese yen fell 0.44% to 156.43 per dollar on Wednesday, its weakest level since January 23, when it had rallied sharply from 159.23 amid speculation about New York Fed rate testing operations.

Carol Kong, currency strategist at Commonwealth Bank of Australia, said a strong result for the Liberal Democratic Party would encourage Takaiichi to proceed with fiscal stimulus plans, raising risks of a higher government debt burden and putting pressure on Japanese government bonds and the yen.

Takaiichi had triggered a yen selloff earlier in the week after an election speech highlighting the benefits of a weaker currency. Although she later walked back those remarks, concerns remain that mixed signals from the prime minister could undermine efforts to support the fragile yen.

Elsewhere, the Australian dollar rose 0.2% to $0.7039 after a strong 1% gain in the previous session following an interest rate hike by the Reserve Bank of Australia.

The Chinese yuan briefly touched its highest level against the dollar in about 33 months, supported by firmer central bank guidance, although the daily fixing came in weaker than expected, which investors interpreted as an attempt to limit further gains.

The yuan continued to post steady gains on strong export performance. While analysts believe authorities will resist further appreciation, risks remain tilted to the upside, posing a potential test for China’s fragile economy.

Gold prices rose nearly 3% in European trading on Wednesday, extending their recovery for a second straight session from a four-week low, and recouping a large portion of the losses recorded during the historic selloff that hit precious metals on Friday and Monday.

Prices forcefully broke back above the key psychological level of $5,000 per ounce and are approaching $5,100, supported by safe-haven demand amid escalating geopolitical tensions between the United States and Iran.

Prices are also being supported by a weaker US dollar ahead of key US labor market data, which is expected to provide strong signals about the Federal Reserve’s interest rate path this year.

Price overview

Gold prices today rose 2.95% to $5,091.99, up from the session opening level of $4,946.06, with an intraday low of $4,910.17.

At Tuesday’s settlement, gold gained 6.1%, marking its first daily gain in four sessions and the biggest one-day rise since November 2008, after rebounding from a four-week low of $4,402.83 per ounce.

Gold lost about 13% over Friday and Monday combined during a historic wave of selling across precious metals markets, driven by easing concerns about Federal Reserve independence and after CME raised margin requirements on gold and silver futures.

Geopolitical tensions

Geopolitical tensions in the Middle East escalated after the US military announced on Tuesday that it had shot down an Iranian drone that approached the aircraft carrier Abraham Lincoln in what it described as a hostile manner while operating in the Arabian Sea.

US Central Command said the drone approached with hostile intent and unclear objectives while the carrier was about 500 miles from Iranian shores, ignoring repeated warnings and de-escalation procedures.

Iranian state media, however, described the flight as a routine and lawful reconnaissance mission in international waters, saying the drone successfully transmitted images and data before contact was lost.

US dollar

The dollar index fell 0.1%, extending losses for a second straight session and pulling back from a two-week high, reflecting continued weakness in the US currency against a basket of major and minor currencies.

Beyond profit-taking, the dollar is softening as investors refrain from building new long positions ahead of key US labor market releases that will offer clearer guidance on the Federal Reserve’s rate path this year.

Markets are still digesting President Donald Trump’s nomination of Kevin Warsh as the next Federal Reserve chair. The dollar had generally strengthened on expectations that Warsh would not move quickly toward rate cuts.

Investors also showed some relief as the nomination eased part of the concern about Federal Reserve independence following Trump’s repeated attacks on the central bank and current chair Jerome Powell.

US interest rates

According to the CME FedWatch tool, pricing for holding US interest rates unchanged at the March meeting stands at 85%, while the probability of a 25 basis point rate cut is priced at 15%.

To reprice these expectations, traders are closely watching a series of very important US labor market reports.

Later today, US private sector payrolls data for January will be released, followed by weekly jobless claims on Thursday.

Gold outlook

ANZ commodity strategist Soni Kumari said that after the sharp rally, a correction was expected and not surprising, and with gold rising again, the underlying fundamentals have not changed much, as the geopolitical and economic backdrop remains largely intact.

Goldman Sachs said on Wednesday that there are significant upside risks to its year-end gold forecast of $5,400, citing continued central bank accumulation and increased retail investor flows into gold exchange-traded funds.

Jigar Trivedi, senior research analyst at IndusInd Securities, said gold could reach $5,600 by the end of the first half of the year or by the end of April, and continue rising toward $6,000 per ounce by year-end.

SPDR fund

Holdings in the SPDR Gold Trust fell by 3.72 metric tons on Tuesday, bringing the total down to 1,083.38 metric tons.

Palladium prices rose during Tuesday trading as demand for metals — particularly industrial metals — improved, alongside a decline in the US dollar against most major currencies.

UBS said in a client note last month that it raised its palladium price forecast by $300 per ounce to $1,800, citing a sharp increase in investment inflows into the metal.

Analyst Giovanni Staunovo said the revision was driven by strong investment demand in recent months, noting that the relatively small size of the palladium market often leads to sharp price swings.

The bank explained that the recent price momentum was not driven by traditional industrial uses, but rather by investor positioning ahead of potential US interest rate cuts, a weaker dollar, and rising geopolitical uncertainty.

Staunovo said that if investment demand remains strong, prices could move higher, but warned that without that support, the market would appear broadly balanced — which is why UBS prefers exposure to gold instead.

Palladium demand has shifted in recent years after autocatalyst consumption peaked in 2019, when prices surged above platinum and triggered substitution trends.

The spread of electric vehicles, which do not use catalytic converters, has also weighed on palladium demand.

However, the bank noted that palladium has rallied alongside platinum and silver since mid-2025. With palladium now significantly cheaper than platinum, UBS expects catalytic converter manufacturers to gradually switch back to using it over time.

Investment activity in palladium has increased notably, with UBS highlighting rising ETF holdings since mid-2025, as well as a sharp build-up in speculative futures positions after being net short for most of last year.

China may also be supporting demand, as Staunovo said the launch of yuan-denominated platinum futures contracts in Guangzhou likely boosted palladium demand as part of broader trading activity across the platinum group metals complex.

The US dollar index fell 0.2% to 97.4 by 15:29 GMT, after touching a session high of 97.6 and a low of 97.3.

In trading, March palladium futures jumped 6.3% to $1,813 per ounce as of 15:30 GMT.

Bitcoin recovered from near its lowest level in about 10 months on Tuesday, but remained under pressure below the $80,000 mark, after heavy weekend liquidations and uncertainty over US monetary policy weighed on the market.

The world’s largest cryptocurrency was trading up 2.8% at $78,558.4 as of 01:42 ET (06:42 GMT).

Bitcoin had fallen to $74,635.5 over the past 24 hours, its lowest level since early April, as selling accelerated due to a wave of stop-loss triggers and margin calls.

Heavy Liquidations and Trump’s Fed Nominee Weigh on Bitcoin

The sharp weekend decline was driven by widespread forced liquidations of leveraged positions, highlighting the scale of speculative exposure built up during last year’s rally.

Derivatives tracking firms showed that billions of dollars in crypto bets were wiped out within a short period, with long positions accounting for the largest share of forced closures.

Reports indicated that weak liquidity amplified price swings, allowing relatively limited moves to trigger broad liquidation cascades.

Sentiment was also pressured by macro uncertainty, as investors assessed the implications of Kevin Warsh’s nomination to lead the US Federal Reserve, prompting markets to reassess the future path of interest rates.

Warsh is widely seen as leaning toward a more hawkish monetary stance, raising concerns that financial conditions could remain tight for longer.

At the same time, the closely watched January US jobs report was delayed from its scheduled Friday release due to the partial US government shutdown, according to the Bureau of Labor Statistics.

No Agreement on Stablecoin Yields at White House Meeting

Media reports said the crypto industry and major US banks remain divided over how to regulate stablecoin yields, following a White House meeting, underscoring continued obstacles facing long-stalled digital asset legislation.

The meeting included crypto executives, bank representatives, and government officials in Washington to discuss market structure rules, but little progress was made on whether stablecoin issuers should be allowed to offer interest-like returns.

Banks argue that yield-bearing stablecoins could accelerate deposit outflows and pose financial stability risks, while crypto firms say such features are necessary for growth and competitiveness.

Crypto Prices Today: Altcoins Recover, Polygon Jumps

Most alternative cryptocurrencies also posted modest gains on Tuesday.

Ether, the world’s second-largest cryptocurrency, rose 4.6% to $2,325.92.

XRP, the third-largest cryptocurrency, gained 2.1% to $1.61.