USD: Dollar rebound ends turbulent January
The dollar spent most of January on the back foot, slipping to a four‑year low near 95.8 on the DXY, before stabilizing into month‑end as the market narrative shifted from geopolitical fears to monetary policy. Following the Fed’s decision to maintain the target range at 3.50%–3.75% on January 28—and Chair Jerome Powell’s reminder that his term concludes in May—President Trump nominated former Fed governor Kevin Warsh to succeed him. This selection of an experienced insider provided initial support to the greenback, a tone that was solidified by a hotter‑than‑expected December Producer Price Index. The data nudged investors away from expectations of early‑2026 rate cuts, forcing a reconsideration of the dollar’s trajectory against a backdrop of unfinished inflation work. Ultimately, while the month did not signal a complete macro reversal, the combination of a credible Fed successor, sticky inflation data, and a sharp position clean‑up in precious metals was enough to lift the dollar from its lows, leaving rate‑sensitive assets volatile and the long end of the Treasury curve demanding a higher premium.
Warsh’s selection sets up a credible‑but‑flexible policy mix, though he enters the fray facing major economic crosscurrents: a President demanding lower rates while sticky inflation remains a “thorn” for the public, and a stagnant job market where the benefits of expansion are skewed toward the top higher-income households. His mentor Stanley Druckenmiller noted Warsh’s primary challenge will be expanding the economy amid an AI boom without reigniting inflation. In his first stint at the Fed he built a hawkish reputation and was skeptical of expansive QE—positions that cemented his inflation‑first credentials—yet more recently he has argued for “regime change” at the central bank, emphasizing credibility and independence while signaling openness to lower policy rates alongside a smaller balance sheet.
Markets appear to be penciling only modest easing later this year rather than a rapid cutting cycle, broadly consistent with recent Fed communication that any moves will be data‑dependent and likely later in 2026 rather than immediate. However, confirmation is not guaranteed, as Senator Thom Tillis has vowed to block the process until the DOJ probe into the current Chair is resolved, citing the need to protect central bank independence.
Rates and FX markets immediately digested these crosscurrents, telling a story of rapid repricing into month-end. The dollar firmed following the Fed’s hold and the Warsh nomination, holding those gains as longer maturity Treasury yields nudged higher on re-priced inflation risk, while the front end remained anchored by the Fed’s “wait-and-see” stance. In G10 FX, the early‑January leadership from “risk‑on” currencies—AUD, NZD, NOK, and SEK—faded as the greenback steadied, reversing part of the month’s initial drawdown. Commodities delivered the most dramatic reaction to this shift; after setting record highs, gold and silver unwound sharply, with silver posting a massive intraday fall driven by crowded positioning and a stronger dollar. Bitcoin dropped below $80,000 for the first time since April 2025, highlighting that cross‑asset correlations remain unstable when the dollar regains a bid.
The week ahead will rigorously test the theme of policy divergence and the pulse of global growth. The ECB and Bank of England are expected to hold policy on Thursday, while the RBA is widely tipped to hike after upside surprises in Australian inflation—an asymmetry that keeps the AUD particularly sensitive. In the U.S., the data calendar is heavy with ISM Manufacturing (Mon) and Services (Wed), followed by the mid-week ADP report and Friday’s pivotal January employment data; consensus expects 40k payroll gains with unemployment in the mid‑4s, though wage revisions will be key for policy. Corporate results will add vital macro color on consumer demand and capex, with Disney reporting Monday, followed by Alphabet on Wednesday, and Amazon on Thursday.
CAD: Loonie slips, growth momentum fades
Canada’s November GDP print delivered a picture of an economy still struggling to regain momentum, with real output essentially flat after October’s decline. The goods‑producing sector remained the primary drag—manufacturing contracted sharply again, weighed down by semiconductor‑related auto production disruptions and weakness across machinery, metals, and food processing. Services provided only a modest offset, with gains in retail, education, and transportation helping stabilize the headline figure. This mixed performance aligns closely with the tone of the latest Bank of Canada meeting, where policymakers emphasized that progress on disinflation is continuing but remains uneven, and that growth is expected to stay subdued through early 2026 as past rate hikes continue to filter through the economy.
The Monetary Policy Report’s outlook for 2026 already anticipated a sluggish handoff from 2025, and November’s data reinforces that narrative. The BoC has been clear that it expects below‑trend growth to persist as excess demand unwinds, and the latest GDP details—particularly the deepening weakness in manufacturing and ongoing softness in resource‑linked sectors—fit neatly into that framework. At the same time, the rebound in education, transportation, and parts of retail suggests the services side of the economy is still resilient enough to prevent a more pronounced downturn. With the advance estimate pointing to only a slight uptick in December and Q4 likely contracting marginally, the central bank’s cautious stance looks justified, and the bar for near‑term policy easing remains high despite market hopes for earlier cuts.
In FX, after trading near 1.348 on Thursday, the USD/CAD pushed above 1.36 by week’s end, leaving the Canadian dollar up only 0.8% for the month against the USD—once again underperforming its G10 peers for the month of January. The move came alongside a sharp underperformance in Canadian equities, where miners dragged the index lower as precious‑metal prices extended their selloff. Given that miners have been a major driver of Canadian earnings growth and a key beneficiary of earlier rallies in gold and silver, the market’s sensitivity to commodity swings remains a structural headwind for Canadian stocks. With domestic growth soft, risk sentiment wobbling, and the BoC maintaining a cautious tone, USD/CAD continues to trade like a laggard in the G10 complex rather than a currency poised to benefit from any near‑term macro tailwinds.
MXN: Taking a breather
A softer US dollar—so long as it isn’t a symptom of American economic weakness—has historically been a spark for risk‑on sentiment in emerging markets. That pattern has reasserted itself in early 2026: investors have been doubling down on high‑yield Latin American currencies to capture the trifecta of carry, commodity‑linked valuation mean reversion, and a lower perceived risk premium. Momentum accelerated after “Liberation‑day,” when fears of sudden FX breaks receded, and Latin American assets subsequently outpaced global benchmarks amid a rare stretch of regional calm.
Within that trade, the Mexican peso became the poster child. Yet the latest market turn suggests the advance has met a meaningful speed bump. After USD/MXN had slid toward 17.1, a Friday swing pushed the pair back above 17.4 as the nomination of Kevin Warsh as the next Fed Chair firmed the dollar and lifted U.S. yields.
Whether the trend resumes will depend on Mexico’s domestic resilience against a narrowing yield differential. Mexico’s Q4 GDP rose 1.6% year‑on‑year, enough to avoid a technical recession and edge past the central bank’s modest projections. Services and manufacturing are stabilizing, but projected 2025 growth of 0.5% still trails the U.S., reinforcing expectations that Banxico will remain cautious after December’s cut to 7%. As next Thursday’s meeting approaches, policymakers must weigh a shrinking negative output gap against signs that commerce is losing momentum—a delicate balance that will determine how much of the peso’s carry premium can be preserved.
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Calendar: February 2 – 6
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
