Market Overview: Greenback Recovery and Treasury Policy

The US dollar extended its recovery phase following Treasury Secretary Bessent’s remarks to CNBC affirming that the United States consistently supports a strong dollar. Nonetheless, market participants remained skeptical of the administration’s stance, particularly after mixed signals from the prior week including verbal support for Japan and the President’s comments downplaying concerns about the dollar’s recent sharp depreciation while continuing to advocate for lower interest rates.

Post-FOMC Market Dynamics

Although some volatility followed the Federal Open Market Committee’s (FOMC) widely anticipated decision to maintain the current policy rate, the dollar’s earlier intraday gains largely dissipated by market close. Initial dollar selling pressure intensified post-FOMC but subsequently reversed, resulting in minimal net change during late European morning trading. Momentum indicators flagged overextension intraday, and North American markets exhibited a tendency to reduce dollar exposure following the Federal Reserve’s announcement.

Geopolitical Tensions and Oil Prices

Heightened geopolitical tensions, underscored by the massing of US naval forces near Iran, have contributed to rising oil prices, pushing benchmarks to four-month highs.

Currency Movements in Major Markets

Eurozone Developments

The euro continued its retreat after the Federal Reserve’s statement endorsing a steady policy path. It briefly slipped below the $1.19 threshold before finding support and rebounding to around $1.1950 by the North American session close. Asian trading saw the euro approach $1.20 before easing back below $1.1940 during European trade. Intraday momentum indicators remained stretched ahead of North American market openings.

Japanese Yen

The US dollar surpassed JPY 154.00 immediately following the FOMC announcement, retracting to the JPY153.20 level subsequently. In today’s local session, the greenback slipped toward JPY152.75, with recent two-day lows near JPY152.10-20. European session trading saw a dollar recovery close to JPY153.50.

British Pound

Following an early Asia-Pacific high near $1.3850, sterling dropped to approximately $1.3750 amid dollar strength in the North American morning, stimulated by remarks from Treasury Secretary Bessent. The pound revisited lows post-FOMC before recovering to near $1.3810. Follow-up buying lifted it back to the $1.3850 area, where resistance was met. Subsequent European-session selling brought it down to about $1.3780, with momentum indicators extending.

Canadian Dollar

The US dollar declined to roughly CAD 1.3535 in North American trading, marginally under last year’s lows. It recovered to nearly CAD 1.3610 before settling slightly above CAD 1.3555. The Asia-Pacific session witnessed a drop to CAD 1.3510 followed by a rebound to the CAD 1.3560 region. Upward potential appears limited, likely facing resistance before CAD 1.3580.

Australian Dollar

This currency fluctuated mostly between $0.6980 and $0.7000 during North American trading. As the dollar softened after the Fed’s announcement, the Aussie advanced to near $0.7045 late in the session. It later hit almost $0.7095 in Asia-Pacific trading before reversing course, returning toward the lows around $0.7020.

Swiss Franc

The franc’s strength poses challenges for the Swiss National Bank. The currency is at its weakest level against the dollar in over ten years, although officials typically focus more on the franc-euro cross. The euro dropped to its lowest since 2015 against the franc, near CHF 0.9155 yesterday. The Swiss deposit rate stands at zero, with the two-year note yield at minus 20 basis points. The dollar and euro have held recent lows in current trading.

Emerging Markets Overview

Mexican Peso

The dollar maintained levels above MXN 17.14 during North American trading, peaking near MXN 17.26 midday in New York. The session low on Wednesday occurred in a subdued trading window between North American and Asia-Pacific sessions (MXN 17.1055). The dollar settled just below MXN 17.19 and traded quietly within a MXN 17.1115 to MXN 17.2050 range today.

Chinese Yuan (Offshore)

The dollar remains consolidated against the offshore yuan, having set a low on Tuesday near CNH 6.9315. Since then, it has stayed below CNH 6.95. The People’s Bank of China fixed the yuan at CNY 6.771 today, compared to CNY 6.9755 previously. Typically, a downward revision in the reference rate represents a more significant adjustment than an upward one.

Indian Rupee

Despite stronger equities, the Indian rupee hit a record low today, with the dollar rising above INR 92.00. The Reserve Bank of India intervened, but market response was muted. The depreciation stems from foreign asset sales and cautious repatriation behavior by exporters.

Brazilian Real

The dollar declined to nearly BRL 5.17, the lowest level since May 2024. The Brazilian central bank maintained the Selic rate at 15.00% as expected but signaled the commencement of rate cuts at the next policy meeting scheduled for March 18.

Other Market Developments

Equities

Global equity markets were mostly buoyant, with Taiwan as an exception within the Asia-Pacific region. Indonesian equities continued to face downward pressure due to concerns over a potential downgrade to frontier market status by MSCI. Europe’s Stoxx 600 index regained nearly half of its prior day’s 0.75% decline. US index futures also showed strength.

Government Bonds

Benchmark 10-year yields presented a mixed picture: Japanese Government Bond (JGB) 10-year yields inched higher, while longer-dated 30- and 40-year yields eased. European sovereign yields softened moderately, whereas the US 10-year Treasury yield held firm at 4.25%. As anticipated, the Swedish Riksbank maintained its deposit rate at 1.75%, reinforcing its extended pause.

Precious Metals

Gold and silver continued their upward trajectory, with gold reaching nearly $5,600 before retreating to above $5,500 ahead of North American market openings. Silver briefly surpassed $120 but declined back to near $117, following a close around $116.70 yesterday.

Energy Markets

Heightened US-Iran geopolitical tensions propelled March WTI crude oil prices up to $65 per barrel, reaching the highest level since the previous September. The weekly low was approximately $60.15 on Tuesday.

Economic Data and Central Bank Policies

United States

With the economy exhibiting stronger growth in Q4 2025 and persistent inflationary pressures, the Federal Reserve’s decision to maintain policy was largely anticipated. Limited market reaction to the FOMC decision and press conference suggests the outcome aligned with expectations. The Atlanta Fed GDP tracker estimates Q4 growth at 5.4%. Upcoming data releases—including November trade figures, factory orders, and wholesale inventories—will enable economists and models to refine GDP forecasts.

Trade balance figures may be distorted by tariff-related activities and precious metals trade; however, the deficit likely increased in November after four months of contraction. Durable goods orders benefitted from a significant uplift in aerospace (notably Boeing), a factor expected to be mirrored in factory goods orders. Wholesale inventories are projected to have expanded for a third consecutive month in November. Weekly jobless claims may have posted their first consecutive rises since early autumn.

The January nonfarm payrolls report is scheduled for release on February 6, with preliminary forecasts increasing to roughly 70,000 jobs added, up from 50,000 in December.

Canada

As expected, the Bank of Canada held policy steady at its recent meeting. Statistics Canada will release November merchandise trade data today. The Canadian trade balance has been adversely impacted by US-related disruptions, deteriorating significantly in 2025. The merchandise trade deficit was approximately CAD 8.3 billion over the first ten months of 2024 and widened to about CAD 28.7 billion in the same period of 2025. Prime Minister Carney, enjoying strong poll support, has embarked on efforts to diversify Canada’s trade relationships.

Eurozone

Eurozone money supply, as measured by M3, slowed to 2.8% year-over-year in December from 3.0% in November. Lending to households increased by 3% annually, slightly accelerating from the previous month, while loans to non-financial corporations also rose 3%, albeit more slowly. The first estimate for Q4 GDP is due tomorrow, with forecasts pointing to 0.2% growth following 0.3% in Q3.

Japan

Weekly portfolio flow data through January 23 indicate Japanese investors resumed foreign bond purchases for the second time in four weeks but reversed foreign equity purchases, marking the first sale in four weeks. Conversely, foreign investors net sold Japanese bonds after three consecutive weeks of buying yet continued to acquire Japanese stocks for the fifth straight week. Interest rate differentials and cross-currency basis swaps may prove critical in attracting dollar-based investors back into Japanese markets.

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_Disclaimer: This analysis is provided for informational purposes and does not constitute investment advice._