- Volatility on vacation. Markets are drowning in unknowns yet cross‑asset vol refuses to budge. Take FX – realized and implied vols sit near decades‑low extremes, with the former marking one of the quietest starts on record for some majors.
- Fed under attack. Grand jury subpoenas hit the Fed over HQ renovations, but markets see the real tension in the lack of rate cuts. Powell cast it as an attack on Fed independence, and traders flinched at political pressure creeping into policy.
- Precious rally. On the commodity side, gold and silver are climbing fast, continuing their rally from 2025 – a classic safe‑haven behaviour when political risk rises and policy uncertainty widens.
- Not soft enough. Although US core CPI rose just 0.2% vs 0.3% m/m, alternative measures point to inflation drifting higher, keeping Fed-pause bets alive.
- Hawks take hold. Bloomberg’s Fed‑sentiment tracker shows rhetoric turning the most hawkish since April and rates markets have shoved the next Fed cut back to June, lifting relative yields in the US dollar’s favour.
- Yen jawboning is back. US Treasury Secretary flagged the slide in key Asian currencies — singling out the won and the yen — just as markets brace for potential Japanese intervention after the yen hit an 18‑month low.
- That’s oil folks. Crude spiked to its highest since October on rising Iran tensions, but a 5% slide after President Trump stepped back from immediate military action shows just how headline‑driven this market still is.
Global Macro
All that glitters get lit
Silver’s shine. The metals complex is on fire to start 2026, picking up exactly where the Q4 2025 rally left off. Analysts are racing to pin down the driver: is it the weight of central bank accumulation, the acceleration of the so called ‘de-basement trade’, or a preemptive strike against resurgent inflation? Perhaps it is a reaction to fiscal deficits and their looming pressure on long-end yields, or a geopolitical scramble to secure critical minerals for industrial survival. Whether it’s inflation hedging or industrial scarcity, or a powerful convergence of them all, the market is forced to ask: is this the definitive start of a 2026 commodities super-cycle?
Fed’s independence. Relentless headlines have defined the start of 2026, topped by the Department of Justice’s (DoJ) move against the Fed. So far, the market has stayed sanguine, choosing to look through the volatility. But you can’t ignore the systemic fallout. The near-term may be calm, but the big-picture ramifications are too significant to overlook.
US CPI. The latest US Consumer Price Index (CPI) report revealed a stabilizing inflationary environment to end 2025, with the headline rate holding steady at 2.7% year-on-year and the monthly core reading coming in at a lower-than-expected 0.2%. Odds of a rate cut for March have increased, yet the timeline for a broader H1 easing cycle remains shrouded in uncertainty.
Germany and the UK. Germany has returned to growth (+0.2%) and UK manufacturing is surging (+2.1%). Across parts of Europe, the macro-narrative has officially shifted from recession to resilience.
Week ahead
Inflation under the microscope
Labour market still soft. The UK jobs report is due. The trend has been one of a softening labour market, with the October’s unemployment rate rising to 5.1%, the highest since 2020. Wage growth has also been on a declining trend. The soft backdrop has, however, failed to push the BoE toward a more dovish stance given still‑sticky prices.
Key inflation check ahead. The UK inflation report is also due, offering a fuller picture of the price backdrop relevant to the BoE’s mandate. Persistently sticky price pressures have kept the MPC cautious about more aggressive easing. There are signs of disinflation, however, with easing wage growth playing a key role. The report is therefore highly anticipated.
US growth under review. We will be monitoring the third and final estimate of Q3 GDP growth in the US, with the first estimate for Q4 due in February. An upward revision in the Q2 release triggered a meaningful bullish dollar reaction, highlighting resilient consumer spending despite tariff‑related uncertainty.
PCE takes centre stage. We will also track the Personal Consumption Expenditures report, the Fed’s preferred inflation gauge, to assess the US price backdrop. The Fed expects inflation to peak in Q1 as the tariff pass‑through fades. Monitoring this index will be crucial as we calibrate the Fed easing path.
BoJ steady, politics stir. Both the PBOC and the BoJ will hold their policy rates. The BoJ will draw particular attention at a time when the JPY is experiencing broad‑based weakness. Markets do not expect another hike until July, yet potentially imminent snap elections called by pro‑stimulus Prime Minister Takaichi to secure further support place any BoJ forward guidance under scrutiny, given the now contrasting policy preferences.
FX Views
Euro softens as dollar sets the tone
USD Dollar holds the line. Despite its early-week sell-off following concerns about Fed independence, the dollar ultimately ended the week unscathed. The dollar index is heading toward a 0.2% weekly gain, with the political risk premium largely contained thanks to Powell’s firm public stance against the DoJ’s criminal investigation and a chorus of support from key US political figures. The dollar was therefore able to move more in tune with a flow of data releases showing no further deterioration in the labour market, with the Beige Book and weekly jobless claims acting as key inputs. The move higher was supported by yet another confirmation that the Fed sees no urgency for immediate easing. The greenback also continues to benefit from the unwinding of December’s negative seasonality, reinforcing its consolidating stance in the 98 to 100 range.
EUR 1.16 tested, 1.15 in sight. EUR/USD hovers around the psychologically important 1.16 level, heading toward the week’s close 0.3% lower. The pair’s price action remains at the mercy of US developments. While we expect rangebound trading to persist in the weeks, if not months, ahead within a 1.15 to 1.18 corridor, the lower end of the range looks more vulnerable to testing in the near term, as US data continues to confirm a resilient macro backdrop. Technically, the proximity to the 200‑day moving average supports the case for a move lower, with positioning in the options market reinforcing that view: One‑month risk reversals, a key gauge of directional bias, have turned bearish for the first time since November. That said, with more meaningful easing bets not priced in until June, any pricing-out of cuts should have only a mild bearish impact on the pair, which supports 1.15 holding for now.
GBP Can’t cash the hype. Sterling began the week on firmer footing against the dollar as the probe into Fed Chair Jerome Powell revived worries that Trump’s push for much lower rates could undermine the Fed’s credibility — giving the de‑dollarization narrative fresh oxygen. GBP/USD rebounded into the mid‑$1.34s after a clean bounce off its 200‑day moving average, reinforcing the sense that the broader uptrend could still be intact. But despite a backdrop that looked broadly GBP‑supportive — stronger risk sentiment, softer volatility gauges, a slide in oil, and markets paring back BoE‑cut expectations after a firmer UK GDP print — sterling couldn’t hold its gains. The reason is increasingly mechanical: sterling is reacting more aggressively to USD swings than most majors, a flow‑driven dynamic that has intensified in recent months and is now bleeding into the crosses. For GBP/EUR, the 200‑day moving average remains the key ceiling; failure to break decisively above €1.1571 would cement a bearish double‑top and open the door to a move back toward €1.14. Near term, any renewed USD strength will naturally drag GBP/USD lower. The 100‑day moving average ($1.3365) is now a key support zone, and a break would expose $1.33. All of this sets up a data‑heavy UK week incoming where fresh catalysts may finally shake sterling out of its low‑volatility drift.
CHF Haven on a handbrake. Safe haven demand boosted the franc at the start of the week amid geopolitical tensions and concerns over Fed independence. However, Trump’s signal that the US may hold off on intervening in Iran has dampened demand for safe‑haven assets, including the Swiss franc. The currency is on track for its third weekly loss of 2026 against the dollar, while EUR/CHF is essentially flat on the year. What makes the franc’s softness notable is the lack of evidence that the SNB is leaning against it: sight deposits have moved in a narrow band, and the latest FX‑reserve data doesn’t point to active intervention. And while the franc is nominally close to some of its strongest levels ever versus the dollar, Switzerland’s real‑effective exchange rate doesn’t yet flag extreme overvaluation — suggesting the currency still has room to absorb inflows if geopolitical risks escalate from here.
CAD Holding pattern. USD/CAD has stayed in a state of consolidation during this week, currently trading near 1.3878 as it attempts to penetrate a strong resistance cluster at 1.39, with the 50-day simple moving average (SMA) at 1.3891 and the 100-day at 1.3901 acting as immediate ceilings that have capped recent breakout attempts. While the RSI sits at 58.82, suggesting there is still room for upward momentum before reaching overbought territory, the pair remains trapped between these overhead levels and the support provided by the 200-day SMA at 1.3839. A decisive daily close above the 1.3900 psychological handle would be necessary to shift the bias from neutral to Loonie bearish; however, until the pair clears the dense cluster resistance and the surrounding moving averages, the Canadian dollar appears likely to remain defensive. Neutral sentiment in the futures market supports the consolidation phase. Focus shifts to Monday’s Canadian CPI release, where headline inflation is expected to hold firm at 2.2% y/y. A print in this range would likely cement the Bank of Canada’s ‘holding bias’.
AUD Inflation expectations ease but remain above RBA band. Australian consumers’ inflation expectations dipped slightly in January, with the Melbourne Institute survey showing the trimmed mean slipping 0.1 points to 4.6%—still higher than the 4% recorded a year ago. The pullback follows a short run of rising expectations and remarks from RBA Deputy Governor Andrew Hauser. He said November’s slowdown in CPI to 3.4% was “helpful” but warned that inflation above 3% remains “too high” and outside the 2–3% target band. Hauser added that the RBA will review the full fourth-quarter CPI later this month but won’t base decisions on a single data point. AUD/USD continues to hover near the lower edge of its ascending channel. Support sits at 0.6639 on the 50-day average, with the 100-day average at 0.6595 as the next line of defense. Traders will be watching upcoming jobs data closely, including unemployment and employment changes.
CNH Xi welcomes global leaders as China resets ties. Chinese President Xi Jinping is welcoming a steady flow of leaders seeking to reset ties with Beijing. Visitors include South Korea’s Lee Jae Myung, Canada’s Mark Carney, and the UK’s Keir Starmer. Talks are expected to focus on trade and access to critical minerals such as rare earths. The visits follow Donald Trump’s recent tariff truce with China, which has spurred other nations to engage quickly with Xi to avoid being sidelined in US–China dealings, Bloomberg reported. The yuan has strengthened, with USD/CNH slipping to a 12‑month low, trading just 0.1% above its January 16 trough of 6.9611. Resistance stands at 6.9911 on the 21‑day average and 7.0302 on the 50‑day average. Traders will be watching upcoming data releases closely, including GDP, fixed asset investment, industrial production, unemployment, and China’s loan prime rates.
JPY Japan finance chief vows action on Yen slid. Japanese Finance Minister Satsuki Katayama said she would not rule out measures to address currency moves, stressing that exchange rates must reflect fundamentals and pledging to respond “appropriately.” She voiced deep concern over the sudden yen weakness seen on January 9, saying the moves did not align with fundamentals. Katayama added she had held detailed talks with US Treasury Secretary Bessent. While markets are not fully pricing the next rate hike until July 31, several board members reportedly argue that persistent yen weakness, companies’ growing willingness to raise prices, and the risk of falling behind justify earlier action. Next USDJPY support at 157.24 on the 21‑day average, with the 50‑day average at 155.93 as the next line of defense. Traders will be watching upcoming industrial production, national core CPI, the au Jibun Bank services PMI, and the Bank of Japan’s policy decision for fresh signals.
MXN Rally resumed. The Mexican Peso is currently staging an aggressive technical breakout, slicing through key psychological support levels near the 17.60 handle to mark its most significant weekly advance since June. This move has effectively invalidated several bearish divergence signals from late 2025, reclaiming momentum with enough conviction to suggest the 50-day moving average, a level it has respected for months, is no longer a ceiling but a launchpad. With USD/MXN now trading at its lowest levels since July 2024, the path of least resistance appears skewed toward further appreciation. However, sustaining double-digit returns remains a high bar for Latin American currencies as they contend with the gravity of a firming Greenback. Should 2026 see even a modest recovery in the US Dollar Index, the Mexican Peso’s yield advantage will likely struggle to drive further spot appreciation.
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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.
