President Trump's comments sent the dollar spiraling lower yesterday. His lack of concern about the dollar after it has been falling sharply in recent days played on market fears that the administration wants a weaker dollar. It follows on the heels of what appears to have been tantamount to verbal intervention to support the yen via Fed price checks with reportedly the Treasury’s fingerprints. The sharp sell-off in the North American afternoon seems to have been exhausted the immediate the move that began early last week. Many dollar shorts seemed content to turn their position over to the new sellers. Japan’s Finance Minister Katayama did her best to keep the fear of joint intervention alive today, saying that Tokyo will coordinate with the US on “currency responses when necessary”.
Attention today turns to the FOMC and Bank of Canada meetings. Neither central bank is expected to do anything. It is one of the times where what officials say may be more important than what they do. Brazil’s central bank also meets today, and it is expected to keep the Selic rate at 15.0%. Sweden’s Riksbank meets tomorrow and the policy rate will likely remain at 1.75%.
Prices
G10
• The euro rose for the fourth consecutive session yesterday. After stalling in front of $1.20, it shot through it late in the North American session after President Trump said he was not concerned with the dollar’s decline. and apparently with the help of stops, surged to $1.2080, its best level since June 2023. Some euro buying may be related to a couple of large options. On Friday, options nearly 4.3 bln euros at $1.19 expire and on Monday (February 2) 2.0 bln euros of options at $1.20 expire. It settled above its upper Bollinger Band (now near $1.1965) for the third consecutive session. In fact, it settled more than three standard deviations above the 20-day moving average. There has been no follow-through buying today and the euro is consolidating in a $1.1960-$1.2045 range.
• After posting a large outside down day against the yen before the weekend, encouraged by the reports of Fed checking prices ostensibly on behalf of the US Treasury, the greenback gapped lower on Monday. That gap is found between Friday’s low (~JPY155.65) and Monday’s high (~JPY155.35). The dollar fell to around JPY152.10 in North America yesterday. The JPY152.50 area corresponds to a (50%) retracement of the greenback’s rally from the September 17 low (~JPY145.50) when the Fed cut rates for the first time last year. The dollar settled below its lower Bollinger Band for the second consecutive session. It is near JPY153.10 now. The greenback is consolidating in a roughly JPY152.20-JPY153.05 range today.
• The broad dollar sell-off saw sterling extend its recent surge and take out last year’s high, which was slightly below $1.3790. It jumped to nearly $1.3870 after President Trump’s comments. Sterling reached its best level since October 2021. Sterling’s seven-day run also began with an outside up day on January 19. For the third consecutive session, sterling settled above its upper Bollinger Band, which is found near $1.3765 today. It settled more than three standard deviations above the 20-day moving average. It found support near $1.3770 today and has held below $1.3850.
• The Canadian dollar reached its best level since last July as the greenback was pummeled. The US dollar recorded a bearish outside down day and was pushed to CAD1.3560. It traded below the 200-week moving average (~CAD1.3615) for the first time since September 2022. The US dollar settled below its lower Bollinger Band (~CAD1.3595 today) for the first time in over a month. The Canadian dollar marginally extended yesterday’s gains as the greenback was pressed lower in the European morning. It is now virtually unchanged.
• The Australian dollar traded above $0.7000 yesterday for the first time since February 2023. It popped slightly above $0.7015 and reached almost $0.7025 today. There is little on the charts before the 2023 high (~$0.7160). It posted an outside up day on January 19 after finding support slightly below $0.6670. It settled above the upper Bollinger Band (~$0.6975 today) for the fifth consecutive session. The Aussie has not failed to take out the previous session’s high since January 16. Today’s low is near $0.6980.
EM
• The greenback was sold to about MXN17.1270 yesterday and MXN17.1055 today before bouncing to a little through MXN17.20 were sellers greeted in early European turnover. Barring a sharp recovery in the dollar, January will be the third consecutive month that the dollar rose in four of the four weeks. There seems to be little chart support until closer to MXN17.00. The greenback settled below its lower Bollinger Band yesterday. It is found near MXN17.13 today.
• The PBOC set the dollar’s fix a new multi-year low today at CNY6.9755 (CNY6.9858 yesterday). Nevertheless, the greenback is holding above yesterday’s low (~CNH6.9315) against the offshore yuan. It reached nearly CNH6.9450. Yesterday’s high was slightly above CNH6.9565.
• The Indian rupee has been unable to recover much despite the greenback’s sell-off. Before the weekend, the dollar traced out a range of about INR91.4150-INR91.97. The market was closed on Monday, and the dollar remained in that range yesterday and today. Even the stronger than expected December industrial production data (7.8% vs a revised 7.2% year-over-year increase, initially 6.7%) failed to boost the rupee. Nor has the new trade deal with the EU and rapprochement with Canada been impactful.
Other Markets
• Global equities are mixed. Tokyo markets themselves were mixed. Hong Kong, and mainland stocks that trade there jumped over 2.5% today, while Taiwan and South Korea indices gained around 1.5%. Other large bourses in the region were mixed. Europe’s Stoxx 600 is giving back most of yesterday’s nearly 0.6% gain. The Nasdaq futures are up nearly 0.9% and the S&P futures are up around 0.35%. Dow futures are a little better than flat.
• Benchmark 10-year yields are mostly lower. In Japan, the yield fell nearly five basis points, and the longer maturities were off three basis points. European yields are off around two basis points, though UK Gilts are bucking the move and the 10-year yield is a basis point higher. The 10-year US Treasury yield is firm near 4.25%.
• Gold reached a record high near $5311 today and is hovering near $5255 in late European morning activity. Silver reached its record on Monday, near $117.70. It pushed above $116 today but is near $111 in Europe.
• March WTI jumped to almost $62.65 yesterday, its best level since late September, encouraged by President Trump’s comments playing up the US forces drawing closer to Iran. The gains were extended to $63.00 today before profit-taking kicked in and the contract returned to almost $62.
Data
• After cutting rates three times in the last part of 2025, there is no urgency for the Fed to move again now. Most Fed officials have acknowledged this but Governor Miran. He seems intent on dissenting again in favor of another rate cut. With above 4% growth in Q3, and the Atlanta Fed tracker above 5% for Q4, even some of the more dovish Fed members may not join Miran in dissent. The futures market has about a 77% chance of a cut at the end of H1 26 and has about slightly less than 85% chance of two cuts this year discounted, even though the median December dot was for one cut and some banks have given up on a cut entirely.
• The outcome of the Bank of Canada meeting will be known several hours before the Federal Reserve, but here, too, there is little chance of a change in the 2.25% target rate. The Bank of Canada says that it does not know the direction or timing of the next move. The swaps market sees a minimal risk of a cut in the coming months, no more than a 15% chance. It is discounting around a 45% chance of hike at the end of the year.
• Australia’s December CPI firmed to 3.8% year-over-year from 3.4% in November. Central bank officials still put more weight on the quarterly reading rather than the new monthly series. CPI rose 0.6% in Q4 (1.3% in Q3). The underlying trimmed mean and weighted median measures rose to 3.4% (from 3.0%) and 3.2% (from 2.9%), respectively. The futures market has about 68% of a hike at next week’s central bank meeting (~60% yesterday) and has another hike fully discounted in late Q3 26.
Reviewed by Marc Chandler
on
January 28, 2026
Rating:
