Dollar Recovers As Steady Inflation Data And Institutional Support Reinforce Fed Credibility

Forex

Economic

Summary:

The U.S. dollar rebounded toward a one-month high after December inflation data met expectations, strengthening the view that the Federal Reserve will hold rates steady...

Dollar Rebound Anchored By Inflation Data

The U.S. dollar regained ground in early Asian trading, with the dollar index rising 0.3% to 99.18, close to a one-month high. The recovery followed U.S. consumer price data that aligned broadly with forecasts, easing fears of an upside inflation surprise. December CPI rose 0.3% from the previous month, reflecting higher rents and food prices as distortions from last year’s government shutdown unwound. This outcome reinforced expectations that the Federal Reserve will remain on hold at its upcoming policy meeting, supporting the dollar through a direct expectations channel rather than speculative positioning.

Market sentiment was further stabilized by a coordinated show of support for Federal Reserve Chair Jerome Powell from global central bank leaders and senior Wall Street executives. Analysts emphasized that preserving central bank independence is critical for maintaining inflation control and financial stability. According to ANZ’s Brian Martin, interference risks higher inflation, increased government funding costs, and greater economic volatility. These statements influence markets through correlation, strengthening confidence in the policy framework even though they do not alter interest rates directly.

Rate Expectations Firm As Policy Pause Looks Likely

Interest rate markets continue to price a high probability that the Federal Reserve will leave rates unchanged later this month. Fed funds futures imply a 95.6% chance of a hold at the January 28 conclusion of the next policy meeting, unchanged from the prior session. Capital Economics noted that indirect political pressure on the Fed is unlikely to unsettle U.S. markets as long as inflation remains under control. This assessment reflects a cause-and-effect mechanism tied to inflation outcomes rather than political rhetoric alone.

Currency market volatility remained subdued ahead of a potential U.S. Supreme Court ruling on the legality of emergency tariffs imposed by President Donald Trump. Analysts at ING observed that markets appear largely indifferent to the outcome, suggesting that traders view the issue as unlikely to materially disrupt current financial conditions. This calm response highlights how markets can discount legal uncertainty when broader macro fundamentals are stable.

Yen Weakness And Japanese Political Speculation

Against the yen, the dollar was little changed at 159.025, after the Japanese currency earlier fell to its weakest levels since January 2024. The yen’s decline was linked to speculation that Prime Minister Sanae Takaichi may call snap parliamentary elections on February 8, following reports in the Yomiuri newspaper. The prospect of elections has fueled expectations of policy continuity or expansion, weakening the yen through anticipatory positioning rather than confirmed policy changes.

Elsewhere, the dollar was steady against the offshore Chinese yuan at 6.9708 ahead of China’s December trade data. The Australian and New Zealand dollars edged modestly higher, while the euro and British pound were little changed. In digital assets, Bitcoin rose 1.8% to $95,751.99, its highest level in two months, while ether climbed 4.0% to $3,334.46. These gains reflect correlation with broader risk sentiment rather than a direct response to U.S. inflation data.

Overall, the dollar’s rebound underscores how steady inflation readings and strong institutional backing for the Federal Reserve can outweigh political noise. With rate expectations firmly anchored and volatility contained, currency markets remain focused on macro fundamentals rather than headline-driven uncertainty.

Source: Reuters

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Gerik

Economic

Political

Iran Developments And Energy Market Reaction

U.S. President Donald Trump said he had canceled all meetings with Iranian officials and reiterated support for protesters driving one of the largest anti-government movements Iran has seen in years. His remarks signaled that diplomatic engagement aimed at easing the violent crackdown may be paused, increasing uncertainty around Washington’s next steps. Oil markets reacted swiftly, with both West Texas Intermediate and Brent crude jumping more than 2.5% during U.S. trading hours. The price surge reflects a direct sensitivity to geopolitical risk, as Iran is a major oil producer with influence over the Strait of Hormuz, a critical chokepoint for global energy flows. Even without confirmed supply disruptions, heightened risk perception has been sufficient to lift prices.

U.S. stocks dipped on Tuesday, retreating from recent highs, despite data showing core consumer inflation in December rose less than expected. Core CPI increased 0.2% month on month and 2.6% year on year, both readings coming in 0.1 percentage points below forecasts, while headline inflation matched expectations. This disconnect underscores how equity performance is currently shaped less by incremental improvements in inflation and more by broader political and institutional concerns. As Morgan Stanley Wealth Management’s Ellen Zentner noted, inflation is no longer accelerating but remains above target, limiting the extent to which softer data alone can support risk appetite.

Fed Independence Back In Focus

Investor unease was amplified by Trump’s renewed attacks on Federal Reserve Chair Jerome Powell, which included personal insults and suggestions that Powell would soon be removed. These remarks coincided with a rare show of support from global central bankers, who issued a joint statement defending the Fed chair. JPMorgan Chase CEO Jamie Dimon warned that undermining central bank independence could backfire by raising inflation expectations and pushing interest rates higher over time. The market response reflects correlation rather than immediate policy transmission, as rhetoric alone does not change rates, but it does affect confidence in the institutional framework guiding monetary policy.

Major U.S. indexes closed lower, with financials offering a mixed picture. JPMorgan shares dipped even after the bank exceeded earnings expectations, suggesting that broader market sentiment outweighed company-specific fundamentals. In Europe, the Stoxx 600 edged down 0.08%, while shares of Danish renewables firm Orsted jumped 5.3% following a favorable U.S. court ruling on its wind project. These divergent moves highlight selective risk-taking rather than a uniform retreat from equities.

Geopolitics Beyond Iran

Political tensions extended beyond the Middle East. Greenland’s Prime Minister Jens-Frederik Nielsen said the territory would choose Denmark over the United States if forced to decide, reinforcing uncertainty around U.S. foreign policy ambitions in strategic regions. Such statements do not directly affect markets through measurable channels, but they contribute to a broader climate of geopolitical unpredictability that weighs on investor sentiment.

In the technology sector, attention remained on Apple and Google’s newly announced multiyear partnership on AI features. While the immediate market impact was muted, the collaboration underscores a longer-term strategic alignment that could reshape competitive dynamics in artificial intelligence. Investor focus here remains forward-looking, tied to growth potential rather than near-term earnings.

Overall, markets are navigating a complex mix of softer inflation data, rising geopolitical risk, and institutional uncertainty. Oil prices have responded most directly to the Iran situation through a clear risk premium, while equities have shown greater sensitivity to concerns about policy credibility and political escalation. The result is a cautious recalibration rather than a wholesale shift in market direction.

Source: Reuters

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Samantha Luan

Forex

Economic

Key Points:

· USD/JPY targets 160 as Japan's snap election risk and fiscal stimulus fears weaken the yen amid soaring JGB yields.

· Rising 10-year JGB yields near 2.18% reflect growing concerns over Japan's debt outlook and fiscal policy direction.

· Despite bullish technicals, expectations of BoJ rate hikes reinforce a bearish medium-term outlook for USD/JPY.

USD/JPY eyes 160 for the first time since the July 2024 yen carry trade unwind as political uncertainty and concerns over monetary and fiscal policy weaken the yen.

The USD/JPY pair gained momentum in the first half of the week despite rising beyond the 157 level, a previous yen intervention threat zone. Japan's finance minister previously warned of yen intervention in the forex markets in the 157-158 range.

This week, 10-year Japanese Government Bond (JGB) yields surged to 2.178%. The weaker yen and soaring yields reflected market sentiment toward Prime Minister Sanae Takaichi's plans for a snap election. Fading bets on a March Fed rate cut have added to USD/JPY momentum.

10-Year JGB Yields – 140125 – Daily Chart

Below, I'll discuss the macro backdrop, the near-term price catalysts, and technical levels traders should closely watch.

Snap Election and Fiscal Policy Concerns Sink the Yen

News outlets reported that Japan's Prime Minister Takaichi may call for a snap election in February over the weekend, her first time facing national voters. Speculation about a snap election intensified as Takaichi's approval rating jumped to 78.1% in January, according to a JNN public opinion survey.

Meanwhile, the Liberal Democratic Party's approval rating remains below 30%, fueling uncertainty over how voters will side in a national election. A strong election win would enable Takaichi to push through fiscal stimulus plans, weighing on demand for the yen. Takaichi's fiscal stimulus plans and Japan's debt-to-GDP ratio have led to a surge in risk premiums for holding JGBs, sending yields to decade highs.

Robin Brooks, Senior Fellow at the Brookings Institution, commented:

"Japan is trapped in a very bad place and is the G10 country that's closest to a full-blown debt crisis. Japan's only choice is to accept higher interest rates and a debt crisis or – if it caps yields – a depreciating yen, which is nearing its 2024 lows…"

Notably, USD/JPY has surged 8.25% since Takaichi's election win to become the LDP leader in early October. USD/JPY trends underscored market concerns about her stance on fiscal stimulus and monetary policy.

USDJPY – Daily Chart – 140126 – Takaichi Effect

The political uncertainty supports a cautiously bullish short-term price outlook for USD/JPY. However, potential yen interventions and the prospect of Bank of Japan rate hikes affirm the bearish medium-term projection.

Crucially, the weaker yen would increase import prices, eroding households' purchasing power. These scenarios may force the BoJ to signal further policy tightening to strengthen the yen.

US Producer Prices and Retail Sales to Drive Dollar Demand

Later on Wednesday, US retail sales and producer prices are likely to influence market bets on a March Fed rate cut.

Economists forecast retail sales to rise 3.0% year-on-year (YoY) in November, down from 3.5% in October. Weaker consumer spending would signal a softer demand-driven outlook, supporting a more dovish Fed rate path.

Meanwhile, economists expect producer prices to increase 2.7% YoY in November, mirroring October's rise. Softer-than-expected producer prices would raise expectations of a March Fed rate cut, weighing on demand for the US Dollar. Increased bets on a March cut would support the bearish medium-term outlook for USD/JPY.

According to the CME FedWatch Tool, the probability of a March Fed rate cut fell from 48.5% on January 6 to 25.7% on January 13. Stronger-than-expected US labor market and Services PMI data cooled expectations of a March cut.

Today's US economic data will be key for the near-term USD/JPY price outlook. Stronger US data would signal a more hawkish Fed policy stance, strengthening the US dollar, and challenging the bearish medium-term outlook.

Nevertheless, expectations of multiple BoJ rate hikes and a new Fed Chair potentially favoring lower interest rates remain key considerations. These factors reinforce the bearish medium-term outlook for USD/JPY.

Technical Outlook: Key Levels to Watch

For USD/JPY price trends, traders should consider technicals and closely monitor the fundamentals.

Viewing the daily chart, USD/JPY trades well above its 50-day and 200-day Exponential Moving Averages (EMAs), indicating bullish momentum. While technicals remain bullish, bearish fundamentals are evolving, countering the technicals.

A drop below 157 would bring the 50-day EMA and the 155 support level into play. A sustained fall below the 50-day EMA would signal a bearish near-term trend reversal, exposing the 200-day EMA. If breached, 150 would be the next key support level.

Crucially, a sustained fall below the 50-day and 200-day EMAs would reinforce the bearish medium-term price outlook.

USDJPY – Daily Chart – 140126 – EMAs

Position and Upside Risk

In my view, expectations for BoJ rate hikes, potential warnings of yen intervention, and bets on Fed rate cuts support a negative price outlook. However, the BoJ neutral interest rate and upcoming US data will be pivotal, given the focus on US-Japan rate differentials.

A hawkish BoJ neutral interest rate level (potentially 1.5%-2.5%) would signal multiple BoJ rate hikes and a narrower US-Japan interest rate differential. A narrower-than-expected rate differential may trigger a yen carry unwind, sending USD/JPY toward 140 over the longer term.

However, upside risks to the bearish outlook include:

· Dovish BoJ chatter and a dovish neutral interest rate (potentially 1%-1.25%).

· Strong US economic data.

· Hawkish Fed chatter.

These events would send USD/JPY higher. However, the threat of yen interventions is likely to cap the upside at the 160 level, based on the latest communication.

Read the full USD/JPY forecast, including chart setups and trade ideas.

Conclusion: Politics, Neutral Rate, and US Data in the Spotlight

In summary, the USD/JPY trends will hinge on Prime Minister Takaichi's election and policy goals, the BoJ's neutral rate, and the Fed rate path.

While a comfortable Takaichi election win would be USD/JPY bullish, a hawkish neutral rate (1.5%-2.5%) would indicate an aggressive BoJ rate path, delivering yen strength. Additionally, dovish Fed chatter would raise expectations of narrower rate differentials, reaffirming the bearish outlook for USD/JPY.

Notably, a sharply stronger yen could trigger the unwinding of yen carry trades, which would likely send USD/JPY toward 140 over the longer 6-12 month timeline.

Source: FX Empire

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Justin

Commodity

Forex

Spot Silver Breaks Through $90 Per Ounce For First Time_1

Silver bars are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich, Germany, January 10, 2025. REUTERS/Angelika Warmuth

Spot silver jumped above the key $90 ‌an ounce level for the first ‌time as soft U.S. inflation data cemented ‍interest rate cut bets by the ⁠U.S. Federal ‍Reserve on the ‌back ‌of geopolitical tensions, robust industrial and investment ⁠demand ⁠and tightening inventories.

Silver prices rose more ‍than 3% to $90 per ounce by 0308 ‍GMT.

Reporting by Ishaan Arora in Bengaluru;

Source: Reuters

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Gerik

Economic

Forex

Dollar Strength Sets The Tone

The Indian rupee entered Wednesday under renewed pressure after U.S. inflation data lifted the dollar to a near one-month high. The one-month non-deliverable forward market suggested the rupee would open in the 90.26 to 90.30 range against the U.S. dollar, compared with a close of 90.19 on Tuesday. Although December’s U.S. headline inflation came in line with expectations and core inflation was slightly softer than anticipated, the data did little to alter the broader outlook for U.S. monetary policy. As a result, the dollar found buyers rather than retreating, reinforcing near-term pressure on emerging market currencies such as the rupee.

The 90.28 to 90.30 region is widely regarded by market participants as a critical near-term support for the rupee. This perception is rooted in recent market behavior rather than coincidence, as the Reserve Bank of India has been seen intervening around these levels. Traders noted that the RBI sold dollars aggressively near this zone last Monday, and the currency again found support there on Tuesday, likely reflecting renewed central bank action. The relationship here is sequential: expectations of intervention shape trader behavior, which in turn concentrates market activity around specific price levels.

Risk Of A Technical Break

Despite recent support, traders warned that the rupee remains vulnerable. One market participant said there was a decent chance the currency could push through 90.30 during the session. A sustained move beyond that level could open the way toward 90.50 to 90.60, shifting attention to how forcefully the RBI might respond. In this context, price action is driven less by new domestic fundamentals and more by the interaction between global dollar strength and perceived intervention thresholds.

The dollar index edged higher in Asian trade, extending Tuesday’s 0.3% gain. Markets continue to expect the Federal Reserve’s first rate cut of 2026 around the June meeting, leaving the dollar broadly supported in the near term. Analysts at MUFG Bank noted that the overall inflationary impact from U.S. tariffs remains contained at an aggregate level, even though individual components showed volatility and lingering effects from data gaps caused by the U.S. government shutdown. MUFG added that it still expects the Fed to cut rates more aggressively than markets are currently pricing, highlighting a divergence between market consensus and some institutional forecasts. For now, however, the dollar’s strength reflects correlation with current rate expectations rather than a decisive shift in the policy outlook.

Flows, Yields, And External Signals

Broader market indicators offered mixed signals for the rupee. Brent crude futures were down 0.2% at $65.3 per barrel, easing some pressure on India’s import bill. The U.S. 10-year Treasury yield stood at 4.18%, reinforcing the dollar’s appeal through higher relative yields. Foreign portfolio flows remained uneven, with foreign investors selling a net $344.6 million of Indian equities on January 12, while purchasing a net $5.4 million of Indian bonds on the same day, according to NSDL data. These flows suggest selective positioning rather than a broad retreat from Indian assets.

Overall, the rupee’s near-term direction hinges on whether global dollar strength persists and how firmly the RBI chooses to defend its perceived support zone. While U.S. inflation data has not fundamentally altered the Fed’s expected path, it has been sufficient to sustain the dollar’s bid, leaving the rupee exposed to further testing of key levels.

Source: Reuters

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Gerik

Economic

Commodity

Silver Breaks Records As Rate-Cut Expectations Build

Silver surged to an all-time high, rising as much as 2.5% to $89.1644 an ounce, while gold traded close to its own record levels. The rally followed U.S. inflation data that came in softer than feared, reinforcing expectations that the Federal Reserve may have room to ease policy further. Although economists cautioned that December’s underlying inflation was artificially depressed by distortions linked to last year’s record-long government shutdown, the data nonetheless shifted near-term expectations toward a more accommodative policy path. This represents a causal relationship, as lower inflation readings directly reduce pressure on central banks to maintain restrictive interest rates, increasing the appeal of non-yielding assets such as gold and silver.

Precious metals have extended the momentum built during last year’s sharp rallies, entering 2026 with renewed strength. Silver had already outperformed gold in 2025, surging almost 150% after a short squeeze in October and persistent supply tightness in the London market. The continuation of gains this year reflects both structural supply constraints and sustained investment demand, rather than a single speculative episode. Gold’s advance has been steadier, reflecting its role as a monetary and geopolitical hedge rather than a pure momentum trade.

Federal Reserve Independence And Market Confidence

Concerns surrounding the Federal Reserve have also played a role in supporting bullion prices. The prospect of a criminal indictment against Fed Chair Jerome Powell has revived anxieties about the central bank’s independence, a cornerstone of U.S. monetary credibility. Central bankers globally have voiced support for Powell, and JPMorgan Chase chief executive Jamie Dimon warned that political interference could backfire. These developments influence precious metals primarily through correlation, as heightened institutional uncertainty tends to lift demand for assets perceived as stores of value, even in the absence of immediate policy changes.

Safe-haven demand has been further underpinned by a series of geopolitical flashpoints. President Donald Trump’s capture of Venezuela’s leader, renewed rhetoric over Greenland, and violent protests in Iran that carry the risk of regime instability have all contributed to a tense global backdrop. These events do not directly disrupt precious metals supply, but they elevate risk perception across markets, strengthening the appeal of gold and silver through association with geopolitical stress.

Bullish Forecast Revisions From Analysts

Reflecting these dynamics, Citigroup analysts raised their three-month forecasts for gold and silver to $5,000 per ounce and $100 per ounce, respectively. Such revisions highlight growing confidence that macroeconomic conditions and political uncertainty will remain supportive in the near term. While forecasts do not drive prices mechanically, they can reinforce market sentiment by shaping expectations and positioning behavior.

As of mid-morning trading in Singapore, spot gold rose 0.6% to $4,616.28 an ounce, while silver added 2.4% to $88.9830 after paring some earlier gains. Platinum and palladium also advanced, pointing to broader strength across the precious metals complex. Meanwhile, the Bloomberg Dollar Spot Index was flat after a modest rise the previous session, offering little resistance to bullion prices. A stable dollar environment removes a common headwind for metals, allowing inflation expectations and risk sentiment to play a more prominent role.

Overall, the surge in silver and renewed strength in gold reflect a convergence of softer inflation data, political uncertainty, and persistent geopolitical tension. While some of the recent inflation weakness may prove temporary, the broader environment continues to favor precious metals as both a hedge against policy risk and a beneficiary of shifting rate expectations.

Source: Bloomberg

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King Ten

Remarks of Officials

Data Interpretation

Economic

The global economy is showing unexpected resilience but is on track for its slowest decade of growth since the 1960s, according to the World Bank's latest Global Economic Prospects report. While the worldwide outlook remains subdued, the UAE economy is projected to expand by 5% in 2026 and accelerate to 5.1% in 2027.

Global growth is forecast to hold steady, easing to 2.6% in 2026 before rising to 2.7% in 2027. This represents a slight upgrade from previous projections, driven primarily by stronger-than-expected performance from the United States, which accounts for two-thirds of the upward revision.

A Tale of Two Trajectories: Advanced vs. Developing Economies

Despite the overall resilience, the report highlights a widening gap in living standards. By the end of 2025, nearly all advanced economies are expected to see per capita incomes surpass 2019 levels. In stark contrast, about one in four developing economies will remain below their pre-pandemic income benchmarks.

"With each passing year, the global economy has become less capable of generating growth and seemingly more resilient to policy uncertainty," noted Indermit Gill, Chief Economist of the World Bank Group.

For developing economies, growth is projected to slow from 4.2% in 2025 to 4% in 2026, before picking up to 4.1% in 2027. Per capita income growth in these nations is forecast at 3% in 2026, a full percentage point below the average from 2000–2019. At this rate, their per capita income is only expected to reach 12% of the level seen in advanced economies.

Low-income countries are forecast to grow at a faster clip, averaging 5.6% over 2026–2027, but this pace is insufficient to close the income gap. These trends amplify the challenge of creating jobs for the 1.2 billion young people expected to enter the workforce in developing economies over the next decade.

Regional Outlook: Middle East Shows Promise

Growth prospects in the Middle East are more optimistic. The World Bank projects that Gulf Cooperation Council (GCC) states will see economic growth accelerate to 4.4% in 2026 and 4.6% in 2027. For the wider Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region, growth is expected to hit 3.6% in 2026 and rise further to 3.9% in 2027.

The global economy in 2025 was buoyed by a surge in trade and rapid adjustments in supply chains. As these effects fade, softening domestic demand is expected in 2026. However, easing global financial conditions and a projected decline in global inflation to 2.6% should provide a cushion against the slowdown.

The Urgent Need for Fiscal Reform

The report emphasizes that overcoming these challenges requires a comprehensive policy response from developing economies. The World Bank outlines a three-pillar strategy:

• Strengthening Capital: Bolster physical, digital, and human capital to boost productivity.

• Improving Business Environment: Enhance policy credibility and regulatory certainty to encourage business expansion.

• Mobilizing Private Capital: Attract private investment on a large scale.

A critical focus is the need to restore fiscal sustainability, which has been weakened by successive shocks, rising debt-servicing costs, and growing development needs.

"With public debt in emerging and developing economies at its highest level in more than half a century, restoring fiscal credibility has become an urgent priority," said M. Ayhan Kose, Deputy Chief Economist at the World Bank. He added that well-designed fiscal rules can help stabilize debt and build resilience, but their success hinges on credibility, enforcement, and political commitment.

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