The consolidation phase in the dollar continues today. Relatively narrow ranges are prevailing, including with the Japanese yen, where the threat of intervention has helped steady the exchange rate. The Bank of Japan meets next week, and although reports suggest that it will take the inflationary implications of the yen’s weakness into account, the swaps market says there is practically no chance of a rate hike until at least Q2. Meanwhile, several NATO members are deploying a small number of troops to Greenland at the request of Denmark in an operation that French President Macron has called “Operation Arctic Endurance”.
President Trump has indicated that after the investigation, the US will not immediately put a tariff on critical minerals, and this rippled through the metals market. After receiving “assurances” that Tehran will not shoot protesters, Trump said he will refrain from taking action in Iran. This eased some anxiety in the oil market.
Prices
G10
• The euro traded in a range of roughly $1.1620 to $1.1700 on Monday and has been confined to the range since. It approached Monday’s low today but held above $1.1625. Options for 900 mln euros expire today at $1.1650 and the session high is slightly below there. The French government survived two no-confidence votes yesterday with the help of the Socialists. The issue was the EU trade agreement with Mercosur (Brazil, Argentina, Uruguay, and Paraguay). Still, Prime Minister Lecornu still faces an uphill battle over this year’s budget, which has still not been approved by parliament.
• The yen has stabilized with the help of yesterday’s stepped-up warning from the finance ministry and today’s reports suggest that the BOJ is sensitive to the inflation implications of the yen’s weakness. The greenback is trading quietly between about JPY158.25 and JPY158.75. Options for $1.45 bln at JPY159 expire today and a smaller stack of almost $400 mln at JPY159.50 also roll off.
• Despite a firm November GDP (0.3%), sterling is struggling. It edged to a new three-day low near $1.3415. Monday’s low was closer to $1.3390, a level not seen since a little before Christmas. The topside stalled slightly below $1.3450, where options for GBP1.3 bln at $1.3450 expiring today.
• The Canadian dollar is at three-day low with the greenback poking above CAD1.3900. Monday’s high was almost CAD1.3920. The week’s low was set Tuesday near CAD1.3855. Slightly below there, at CAD1.3850 there are $1.7 bln options that expire today. Prime Minister Carney is in China, and like the EU, may strike a trade deal with Beijing that includes EV. Canada’s oil could also be a substitute for Venezuelan oil for China.
• The Australian dollar was initially sold to a new low for the week slightly above $0.6665 before recovering to probe the $0.6700 area. It has traded above $0.6700 each session this week but has not settled above it since Monday. Last week’s high was closer to $0.6765, and the $0.6715 area is about the halfway point back up from today’s low.
EM
• The mostly consolidative tone in the foreign exchange market in recent days has been conducive to the Mexican peso, which is trading at its best level since July 2024. The US dollar made a marginal new low near MXN17.7830 today. While the peso is up about 1.2% against the greenback this year, Latam currencies are four of the top five performing emerging market currencies (joined by the South African rand). The Colombian peso leads with about a 2.6% advance coming into today.
• The Chinese yuan has also crept higher, perhaps encouraged by a relative sharp drop in the PBOC’s dollar fix. The reference rate was set at CNY7.0064 (CNY7.0120 yesterday and CNY7.0197 a week ago). Against the offshore yuan, the dollar was sold to about CNH7.6925, its lowest level since May 2023.
• Indian markets are closed today.
• South Korea’s central bank kept the base rate at 2.5%, where it has been since the last cut was delivered last May. The dollar reached a record high against the won last April near KRW1487.50. It approached KRW1485 at the end of last year before intervention and reports of won-buying hedging by the National Pension Service knocked the dollar back to around KRW1425. The dollar reached almost KRW1480 yesterday before US Treasury Secretary Bessent expressed concern about its weakness in the face of more constructive fundamentals. The greenback settled yesterday slightly below KRW1464 and is in a range today of roughly KRW1463.50 to KRW1473.50 Recall that as part of its tariff negotiation with the US last year, Seoul agreed to invest $350 bln in the US, at a pace of $20 bln a year.
Other Markets
• Equities: The large Asia Pacific bourses were mixed. Japan’s major indices themselves were mixed were mixed, and while China’s CSI 300 eked out a small gain, the Shanghai and Shenzhen Composites slipped. Hong Kong and Taiwan also fell. Australia rose but New Zealand fell. Europe’s Stoxx 600 is up about 0.4%, which if sustained would be the best gain this week. Encouraged by the rally in the Taiwan Semiconductor Manufacturing appears to be helping to lift the US equity futures after the US Nasdaq and fell in the past two sessions.
• Benchmark 10-year yields: Japan’s 10-year yield eased a couple of basis points and is now slightly below 2.15%. European benchmark yields are narrowly mixed. The 10-year Gilt yield is up two basis points while Spain and Portuguese yield are slightly softer. The 10-year US Treasury yield is firm near 4.14%.
• News that the US would not impose tariffs on critical minerals initially appeared to spur profit-taking on gold and silver. Gold recovered from a session low near $4581 to resurface above $4620. Silver was initially sold slightly through $86.509 and has recovered smartly to almost $91.50.
• The US says it has “assurances” from Tehran that protesters will not be shot and that will hold off taking action in Iran. This spurred a sell-off in crude. Yesterday, March WTI poked above $62 for the first time since last September and today tested $59.00, a three-day low.
Data
• With US jobs, CPI, PPI, and retail sales behind it, the US economic diary shifts to less impactful reports, which, today, includes the January NY Fed manufacturing survey and the Philadelphia Fed’s business outlook survey. Both are expected to have improved sequentially. Weekly jobless are due and expected to push back above the 4-week moving average (~212k). November import and export price indices will be reported, and although the impact of the tariffs remains debated, the indices typically do not move the markets. Late in the session the November TIC data will be released. Despite the sell-America mantra in some quarters, the TIC data tells a different story. In the first 10-months of 2025, foreigners bought a net $1.08 trillion of US stocks and bonds compared with $970.5 bln in the Jan-Oct 2024 period and $560.6 bln Jan-Oct 2023.
• Canada reports December existing home sales (expected to have fallen for the third time in the past four months). November manufacturing and wholesales are more meaningful for economists than the market.
• Mexico sees October fixed investment. The 6.7% contraction year-over-year in September is likely to have narrowed in October, helped by what is anticipated to be the first increase in three months. Separately, private consumption is seen rising to 4.0% year-over (3.6% in September). If so, it would be the strongest gain since July 2024 and may reinforce the sense the central bank is on the sidelines after extending its easing cycle last year.
• The ECB’s Economic Bulletin largely echoes President Largarde’s comments at the press conference following the recent central bank meeting. The November trade bln surplus narrowed to 10.7 bln euros, (seasonally adjusted) from 13.7 bln euros in October. Through the first 11 months 2025, it recorded a surplus of 153.6 bln euros (compared with 156.8 bln euro trade surplus in Jan-Nov 2024). Industrial output rose by 0.7% in aggregate in the eurozone in November after a 0.7% increase in October (initially 0.8%). It has risen by an average of 0.2% a month through November last year after falling by an average of 0.2% a month in the first 11 months of 2024.
• The UK reported its first monthly GDP expansion since June with a 0.3% increase in November. Industrial output jumped 1.1%, well above expectations, after 1.1% in October. Services output improved (0.3% vs. -0.3% in October). The trade deficit narrowed. Construction output remains a drag (-1.3% vs. -1.2% in October from initially -0.6%).
• Japan reported a 0.1% increase in December producer prices, but due to the base effect, the year-over-year rate eased to 2.4% from 2.7%. It peaked at 4.3% last February and March.
• Australia’s Melbourne Institute survey found consumer inflation expectations were slipped to 4.6% this month from 4.7% in December. It was at 4.0% in January 2025. The futures market continues to believe the central bank’s easing cycle ended last year and the next move will be a hike. There is nearly 40% chance of a hike by the end of Q1 and 80% chance by the end of Q2.
Reviewed by Marc Chandler
on
January 15, 2026
Rating:
