28/01/2025 - 08:26 UTCThe U.S. Dollar Index (DXY), which tracks the greenback against a basket of major currencies, extended its decline on Monday ending the session just above the 107.00 mark. Persistent concerns over inflated valuations in AI markets, coupled with renewed geopolitical tensions driven by President Donald Trump’s tariff threats against Colombia, have weighed heavily on market sentiment. Despite resilient U.S. economic data, the dollar remains under pressure as investors await the Federal Reserve’s interest rate decision on Wednesday.
Economic indicators have pointed to strength in the U.S. economy. The Chicago Fed National Activity Index rebounded to 0.15 in December from -0.01 in November, signaling improving economic activity. New home sales also outperformed expectations, climbing to 698,000 units in December, surpassing the forecast of 670,000 and November’s revised figure of 674,000. However, these positive developments have done little to offset bearish sentiment surrounding the dollar.
U.S. Tech 100 recorded its sharpest one-day percentage drop since December 18, driven by a steep selloff in U.S. chipmakers following the debut of a low-cost artificial intelligence model from a Chinese startup.
Leading AI chipmaker Nvidia saw its shares plunged by almost 17%, erasing $593 billion in market value. The market reaction came after Chinese AI company DeepSeek unveiled a free assistant powered by cheaper chips and less data, raising concerns about the long-term demand for high-end AI-related technologies. DeepSeek's AI Assistant overtook U.S.-based ChatGPT in downloads from Apple's App Store, highlighting its rapid adoption.
On the energy front, oil prices dropped nearly 2% on Monday, reaching a two-week low, as concerns emerged over energy demand linked to the rise of Chinese AI startup DeepSeek’s low-cost model. President Donald Trump’s call for OPEC to lower oil prices and his tariff threats against Colombia, though quickly reversed, added uncertainty to the market.
The U.S. Census Bureau is set to release Durable Goods Orders data for December, while the Conference Board will publish the Consumer Confidence Index for January. However, with the Federal Reserve's monetary policy announcement looming on Wednesday, market participants are expected to remain cautious, avoiding significant moves based solely on these reports.
The EUR/USD pair dropped on Monday, retreating below the 1.0500 level as market risk appetite deteriorated. The decline erased recent gains, with investor sentiment rattled by fresh trade war tensions following a contentious weekend exchange between U.S. President Donald Trump and Colombia regarding migrant deportations.
Meanwhile, newly confirmed Treasury Secretary Scott Bessent wasted no time in advocating for broad-based global tariffs shortly after his Senate confirmation.
The Federal Reserve is widely expected to maintain interest rates in its January meeting. However, attention will focus on Chair Jerome Powell’s tone during his mid-week press conference. If Powell appears uncertain, optimism around further rate cuts in 2025 could falter.
Gold prices dropped on Monday weighed down by a broad market sell-off driven by renewed interest in Chinese AI company DeepSeek. The yellow metal struggled to gain upward momentum despite a decline in U.S. Treasury bond yields, as the U.S. Dollar regained some ground.
DeepSeek’s launch of a cost-efficient language model sent shockwaves through markets, raising concerns about overvaluation in the AI sector.The shift in investor sentiment added to headwinds for gold, as traders pivoted away from traditional safe-haven assets toward reassessing AI-driven equity valuations.
Oil prices fell on Monday during a volatile trading session as traders reacted to U.S. President Donald Trump’s renewed demands for OPEC to lower crude prices and his temporary imposition of tariffs on Colombian imports.
On Monday, Trump reiterated his demands for the Organization of Petroleum Exporting Countries (OPEC) to lower crude prices, arguing that cheaper oil could curb Russia’s revenue and potentially hasten an end to the Russia-Ukraine war.
Adding to oil’s woes, weak economic data from China underscored concerns about slowing global demand. China, the world’s largest oil importer, has been a key driver of global crude markets.
U.S. 500 and US Tech 100 driven by a sharp sell-off in tech stocks sparked by Chinese AI startup DeepSeek. Investors also adopted a cautious stance ahead of the Federal Reserve's interest rate decision later this week.
The launch of DeepSeek's advanced AI technology rattled U.S. tech markets, raising fears of intensified competition and market share erosion for American semiconductor firms. The announcement added to existing geopolitical tensions that have already impacted the tech sector, especially for U.S. chipmakers reliant on global markets for growth.
Markets are now looking ahead to the Federal Reserve's policy meeting, set to conclude on Wednesday. The central bank is widely expected to maintain interest rates within the 4.25%-4.50% range after a series of cuts in late 2024.
Additionally, major earnings reports from technology giants such as Meta Platforms, Microsoft, and Tesla are anticipated to offer insights into the health of the tech sector.
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