Trump Signals Comfort With a Weaker Dollar, Deepening Market Concerns

Economic

Forex

Summary:

The U.S. dollar slid to its weakest level since early 2022 after President Donald Trump openly dismissed concerns about the currency’s decline...

Presidential rhetoric shifts currency expectations

The dollar extended its sharp selloff after Donald Trump told reporters in Iowa that he was unconcerned about the greenback’s recent slump, calling the situation “great” and arguing that U.S. business activity remains strong. These remarks arrived at a sensitive moment for currency markets, where investors were already reassessing assumptions of dollar stability amid policy volatility. Trump’s comments were widely interpreted as an implicit endorsement of a weaker currency, lowering the psychological barrier for traders to maintain or add to short-dollar positions.

Following his remarks, the Bloomberg Dollar Spot Index fell as much as 1.2%, with the U.S. currency weakening against all major peers before stabilizing somewhat in Asian trading. Since Trump’s inauguration, the index has dropped close to 10%, marking one of the steepest post-inaugural declines in recent history.

Policy unpredictability and investor confidence

The dollar’s weakness cannot be explained solely by short-term market mechanics. Trump’s broader policy posture including repeated tariff threats, pressure on the Federal Reserve, large tax cuts that have widened the fiscal deficit, and confrontational diplomacy has unsettled overseas investors. While rising Treasury yields and expectations that the Federal Reserve will pause rate cuts would typically support the dollar, those traditional relationships have weakened as political risk has taken center stage.

Treasury Secretary Scott Bessent has sought to separate the dollar’s exchange rate from its status as the world’s primary reserve currency. However, market participants appear increasingly focused on price action rather than institutional assurances, particularly as Trump has reiterated his preference for much lower interest rates, a stance that structurally undermines currency support through narrower yield differentials.

The debasement trade gathers momentum

As confidence in the dollar has eroded, capital has flowed into alternative stores of value. Gold has surged to record highs, becoming a central beneficiary of what investors now describe as the “debasement trade,” in which assets perceived as insulated from fiscal and political interference attract growing demand. At the same time, emerging-market funds have seen record inflows, reflecting a gradual diversification away from U.S.-centric portfolios.

This shift is not purely causal but strongly correlational. While Trump’s rhetoric does not mechanically force the dollar lower, it amplifies existing vulnerabilities by reinforcing expectations that policy stability is no longer a priority. As a result, even modest negative shocks can generate outsized currency moves.

Options markets and positioning signal further downside

Derivative markets suggest that traders expect the dollar’s slide to continue. Premiums on short-dated options that profit from further dollar weakness have climbed to their highest levels since data collection began in 2011. Turnover in currency-related instruments has also surged, with clearing volumes at the Depository Trust & Clearing Corporation reaching their second-highest level on record earlier this week.

Nomura strategist Dominic Bunning noted that while rate differentials still nominally favor the dollar against several peers, geopolitical and policy antagonism is now the dominant driver. This represents a structural change in market behavior rather than a temporary dislocation.

A deliberate ambiguity with long-term risks

Trump has long held conflicting views on the dollar, alternating between praising its strength as a negotiating tool and promoting weakness as a boost for manufacturing competitiveness. His latest remarks lean decisively toward the latter interpretation. While a softer currency may support exports in the short term, economists warn that prolonged or disorderly depreciation risks undermining financial stability and accelerating capital flight.

For now, markets appear to be taking Trump at his word. With policy signals pointing toward tolerance of further declines, the dollar’s recent weakness looks less like an overshoot and more like a repricing of U.S. political risk in global currency markets.

Source: Bloomberg

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Thomas

Central Bank

Remarks of Officials

Economic

Sri Lanka's central bank has decided to hold its key policy rate steady at 7.75%, a move widely anticipated by economists as the nation awaits a critical review of its US$2.9 billion IMF bailout program.

This marks another pause from the Central Bank of Sri Lanka (CBSL), which has kept the rate unchanged since May. The decision reflects a period of relative stability as the country continues its recovery from the severe financial crisis of 2022, which was triggered by a critical shortage of US dollars.

Economic Stability Supports Rate Decision

The central bank's steady stance is underpinned by several positive economic indicators. Economists who unanimously predicted the hold pointed to a combination of stable inflation, healthy credit growth, and steady economic expansion as justification for maintaining the current policy.

According to the monetary authority, the current interest rate level will help guide inflation toward its 5% target. As of the end of 2025, inflation stood at 2.1%. However, the central bank anticipates that core inflation will accelerate as demand in the economy strengthens.

IMF Program Remains a Key Factor

An International Monetary Fund (IMF) mission is currently in Colombo conducting a fact-finding visit to evaluate government policies. This assessment is a prerequisite for approving the sixth tranche of Sri Lanka's four-year debt bailout program.

Meeting the targets set by the IMF is crucial for several reasons:

• Credit Rating: It is essential for improving Sri Lanka's credit rating following its default.

• Market Access: A positive review will help the nation re-enter international financial markets.

• Future Borrowing: Regaining access is vital for borrowing and repaying debts scheduled to begin in 2028.

Cyclone Impact Tests Economic Resilience

The nation's tentative economic recovery recently faced a setback from Cyclone Ditwah. In late November, the cyclone killed approximately 650 people and affected nearly 10% of the country's 22 million citizens.

The World Bank has estimated the damage to housing, roads, and other critical infrastructure at US$4.1 billion. Despite the slowdown in economic activity following the disaster, the central bank noted that early indicators suggest the economy is showing greater resilience.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Economic

Bond

Market reaction and positioning

Rates markets are moving first. Open interest and volumes in fed funds and SOFR futures have surged, particularly in structures that profit from faster and deeper rate cuts than current consensus. Spreads and option structures now imply expectations that policy rates could fall well below levels embedded in standard interest-rate swaps, signaling a growing conviction that the easing cycle may accelerate if leadership changes. The concentration of activity around mid-2026 tenors suggests traders are targeting the policy window immediately following a potential chair transition.

Rieder, currently chief investment officer at BlackRock, is viewed as distinctly more dovish than other contenders. He has publicly supported larger, front-loaded cuts and criticized rigid forward guidance such as the dots plot. That philosophy resonates with markets seeking clarity and flexibility after years of elevated inflation volatility. Betting markets now place him ahead of former Fed governor Kevin Warsh, reflecting a reassessment of who could best stabilize markets without overtly politicizing the central bank.

Implications for Fed policy

A Rieder-led Fed would likely place greater weight on productivity trends, labor-market cooling and financial conditions, potentially justifying three cuts in 2026 rather than the roughly two currently priced. Importantly, analysts caution that dovish does not mean compliant. Rieder is seen as independent enough to preserve institutional credibility, even as his views align more closely with market expectations for easing.

Hedging demand in long-dated Treasury options spiked during the recent selloff, with put premiums rising as 30-year yields approached multi-month highs. As yields stabilized, those premiums eased, suggesting that while downside protection is still valued, panic hedging has subsided. This pattern is consistent with investors bracing for policy shifts rather than systemic stress.

The rush to price in a dovish Fed chair underscores a broader theme dominating early 2026: policy uncertainty is driving markets to anticipate outcomes before they are formally announced. For bonds, that means front-running easier monetary conditions. For risk assets, it raises the stakes around credibility and communication at the Federal Reserve, where leadership choices now have immediate and tradable consequences.

In short, the rates market is signaling that personnel may soon become policy, and traders are not waiting for confirmation before placing their bets.

Source: Bloomberg

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

FastBull Featured

Daily News

[Quick Facts]

1. French Government survives two no-confidence motions.

2. Sources: Signing of Russia-Ukraine Peace Deal now precondition for Ukraine to receive U.S. security guarantees.

3. U.S. reportedly briefed Israel on progress of preparations for action against Iran.

4. U.S. to hold air force readiness exercise in the Middle East.

5. Iranian officials say they have real-time monitoring of the Strait of Hormuz.

6. U.S. Government faces new shutdown risk as Parties clash over immigration funding.

7. U.S. Consumer Confidence falls to a 12-Year low amid pessimism about the economy and jobs.

[News Details]

French Government survives two no-confidence motions

On January 27th, local time, the French government survived two no-confidence motions. The government led by Prime Minister François Bayrou will continue in office, and France's 2026 budget bill will enter a new round of deliberation. On January 23rd, the National Assembly had already rejected two prior no-confidence motions, allowing the revenue portion of the budget to pass smoothly. Next, the revenue and expenditure portions of the 2026 budget will be merged into a complete bill, submitted to the Senate for review, and then sent back to the National Assembly for final deliberation. The Senate is expected to review the bill on January 29th. French President Emmanuel Macron dissolved the National Assembly in June 2024. The newly elected assembly has a tri-polar configuration of left-wing, centrist, and far-right forces. The government lacks a stable parliamentary majority, and two previous governments have been voted down by the National Assembly.

Sources: Signing of Russia-Ukraine Peace Deal now precondition for Ukraine to receive U.S. security guarantees

On January 27th, local time, the United States has informed Ukraine that only after signing a peace agreement with Russia can Ukraine receive security guarantees from the U.S., said sources. It is reported that such guarantees are seen by Ukraine as a core condition for ending the Russia-Ukraine conflict. The U.S. recently mediated contacts between Russia and Ukraine in Abu Dhabi and believes relevant negotiations have made progress. Sources stressed that the U.S. has not imposed specific content on the peace deal nor required Ukraine to make territorial concessions, denying claims that Washington is trying to force Ukraine to "cede territory."

U.S. reportedly briefed Israel on progress of preparations for action against Iran

On January 27th, local time, CCTV reporters learned from sources that the U.S. recently briefed Israel on its preparations for possible military action against Iran. The U.S. side stated that related preparations are expected to be completed within two weeks and that opportunities for action may arise in the coming months. However, this does not mean action must wait until all preparations are finished. If U.S. President Trump issues an order, action could occur earlier, though this option is not currently considered imminent. U.S. and Israeli officials have yet to confirm the above information.

U.S. to hold air force readiness exercise in the Middle East

U.S. Central Command, responsible for American military operations in the Middle East, issued a statement on January 27th. It confirmed that its Ninth Air Force will conduct a multi-day Air Force readiness exercise to demonstrate rapid deployment, dispersed deployment, and sustained combat capabilities within the Central Command area of responsibility. The exercise aims to enhance the dispersal capabilities of equipment and personnel, strengthen regional partnerships, and prepare for flexible response operations in the region. During the exercise, U.S. forces will deploy teams to multiple contingency locations and validate rapid deployment, mission execution, and withdrawal procedures under small, efficient support arrangements. Central Command did not disclose specific dates or locations for the exercise.

Iranian officials say they have real-time monitoring of the Strait of Hormuz

A senior naval commander of Iran's Islamic Revolutionary Guard Corps, Mohammad Akbarzadeh, said that Iran controls the Strait of Hormuz. "We are receiving real-time intelligence from the air, the surface, and beneath the waters of the Strait of Hormuz, and we have full control over it." Whether ships flying different national flags can move through the strait is entirely controlled by Iran. Security of this strategic waterway depends on decisions made in Tehran.

U.S. Government faces new shutdown risk as Parties clash over immigration funding

Republican Senate Leader John Thune said on January 28th that both parties in Congress are engaged in urgent negotiations with the White House over government funding to avoid partial shutdowns of federal agencies after the January 30th funding deadline. The main dispute centers on Department of Homeland Security (DHS) funding. Because President Trump's hardline immigration measures in Minnesota triggered public backlash, Democrats demand either removing DHS from the overall appropriations bill or limiting its immigration enforcement powers. Otherwise, they will refuse to approve the department's budget. This move directly threatens funding continuity for multiple agencies. Thune revealed Republicans are asking Democrats for a clear list of immigration enforcement restrictions to assess whether such conditions can be accepted. The standoff highlights immigration policy as a key political bargaining chip affecting government operations. Failure to reach a compromise could lead to partial federal agency paralysis starting at the end of this month.

U.S. Consumer Confidence falls to a 12-Year low amid pessimism about the economy and jobs

U.S. consumer confidence fell in January to its lowest level in more than 10 years due to increasingly pessimistic views on the economy and labor market. Surveys also found widespread gloom across age and income groups, with fewer people expecting income growth in the coming months.

The November U.S. consumer confidence index dropped to 84.5 from a revised 94.2 in the previous month, the lowest since May 2014 and below all forecasts from economists surveyed by Bloomberg. The expectations index, reflecting outlook for the next six months, fell in January to its lowest since April last year, while the present situation index dropped to nearly a five-year low.

After a slight rebound in December, concerns about high prices and weak job growth caused confidence to slide again. Economists expect the labor market to remain largely stagnant this year, with limited job openings but no large-scale layoffs. The proportion of consumers who view "jobs as hard to get" rose to its highest since February 2021, while those who view "jobs as plentiful" declined. The gap between these two groups narrowed to its worst level in years.

[Today's Focus]

UTC+8 07:50 Bank of Japan December Meeting Minutes

UTC+8 08:30 Australia December CPI

UTC+8 22:45 Bank of Canada January Interest Rate Decision

UTC+8 23:30 Bank of Canada Governor Macklem Holds Monetary Policy Press Conference

UTC+8 (Next Day) 03:00 Federal Reserve January Interest Rate Decision

UTC+8 (Next Day) 03:30 Fed Chair Powell Holds Monetary Policy Press Conference

Risk Warnings and Disclaimers

Add to Favorites

Liam Peterson

Cryptocurrency

Central Bank

Remarks of Officials

Political

Economic

Traders' Opinions

The Federal Reserve is holding its benchmark interest rate steady, a move led by Chair Jerome Powell that directly challenges pressure from President Trump to implement cuts. This decision, announced at the FOMC meeting in Washington on January 28, prioritizes economic stability and has significant implications for risk assets, including cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH).

Fed Stands Firm Against Political Pressure

In a clear assertion of its independence, the Federal Reserve has opted to maintain current interest rates despite calls from the White House for monetary easing. The decision underscores the central bank's focus on managing inflation and fostering stable economic growth over responding to short-term political demands.

Jerome Powell's leadership is central to this policy, though the potential for dissent from figures like Governor Stephan Miran highlights the ongoing debate within the institution over the best path forward for the U.S. economy.

How Stable Rates Impact Crypto Markets

The Fed's decision to hold rates has a direct impact on the cryptocurrency market. Higher interest rates typically make holding non-yielding assets like BTC and ETH less attractive to investors, who can find safer returns elsewhere. This dynamic can place downward pressure on crypto valuations.

As a result, economists and market analysts are closely monitoring how the sustained rate environment will continue to influence investor behavior and the broader crypto ecosystem.

Economic Rationale: Echoes of Past Policy

The current strategy is not without precedent. The Fed's decision to pause rate adjustments mirrors similar actions taken in 2023-2024, which successfully cooled inflation without tipping the economy into a recession. This historical context suggests the central bank is following a tested playbook aimed at achieving equilibrium.

Furthermore, a high-debt environment limits the government's ability to use fiscal policy to stimulate the economy. As noted by KPMG's Benjamin Shoesmith, this fiscal constraint places more weight on the Fed's monetary policy decisions to maintain stability.

Expert Outlook: A Cautious Path Forward

Market experts largely see the Fed's stance as a prudent measure designed to ensure a gradual and controlled approach to future policy. Analysts like Gregory Daco and Seema Shah suggest this rate stability is crucial for long-term monetary health amid fluctuating inflation.

Daco provides a specific forecast on the timeline for future adjustments, stating, "We anticipate 50 basis points of easing through 2026... first 2026 rate cut is unlikely... before June." This outlook indicates that investors should prepare for a prolonged period of steady rates before any significant easing begins.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Isaac Bennett

Remarks of Officials

Daily News

Economic

Political

India and the European Union have unveiled a landmark free trade agreement designed to eliminate or cut tariffs on over 90% of goods traded between them. The deal, which has been nearly two decades in the making, will see India lower import duties in the politically sensitive agriculture and auto sectors.

The agreement arrives as nations worldwide forge new bilateral deals, recalibrating supply chains and commercial relationships in response to Washington's aggressive use of tariffs. This global shift is already underway. Canadian Prime Minister Mark Carney recently visited China—the first such visit by a Canadian leader in 17 years—to strengthen economic ties. UK Prime Minister Keir Starmer is also scheduled for a three-day trip to China, the first by a British prime minister since 2018.

Despite its significance, the India-EU pact, dubbed the "mother of all deals" by European Commission President Ursula von der Leyen, now faces its most unpredictable challenge: U.S. President Donald Trump.

The Trump Factor: A Persistent Cloud

President Trump, known for imposing punitive tariffs on both allies and adversaries, has not yet commented on the India-EU agreement. His silence is conspicuous and hangs over the deal.

Last August, the U.S. hit Indian goods with higher levies over India's oil purchases from Russia, just days after applying a separate 25% duty on New Delhi. With Trump's increasingly sharp rhetoric aimed at the EU, including threats related to Greenland, his potential reaction casts a long shadow.

Figure 1: U.S. President Donald Trump and Indian Prime Minister Narendra Modi during a meeting on February 13, 2025. The White House response remains a key variable for the new India-EU trade pact.

That shadow grew darker on Sunday when U.S. Treasury Secretary Scott Bessent criticized the EU for finalizing a trade agreement with India in an interview with ABC News.

However, there may be cause for optimism. India's Minister of Petroleum and Natural Gas, Hardeep Singh Puri, told CNBC on Tuesday that the U.S. and India are at "a very advanced stage" of completing their own highly anticipated trade deal.

What's Inside the India-EU Agreement?

Under the terms of the free trade agreement, India will reduce tariffs on European automobiles and agricultural products. In return, the EU will lower duties on Indian exports, including textiles, leather, marine products, and gems and jewelry.

Figure 2: Indian Prime Minister Narendra Modi poses with European Commission President Ursula von der Leyen and European Council President Antonio Costa in New Delhi on January 27, 2026.

While India is the EU's ninth-largest trading partner, making up 2.4% of the bloc's goods trade in 2024, the EU is one of India's top partners, alongside the U.S. and China. For comparison, the U.S. accounted for 17.3% of EU trade, China for 14.6%, and the U.K. for 10.1%.

Key Market Movers to Watch

Investors are also closely monitoring the U.S. Federal Reserve, which concludes its policy meeting on Wednesday. While interest rates are expected to hold steady, Chairman Jerome Powell's comments will be scrutinized amid rising political pressure on the central bank.

Here’s what else you need to know:

• S&P 500 Hits Record High: On Tuesday, the S&P 500 index reached a new all-time intraday high, driven by gains in Big Tech stocks ahead of their earnings reports. The Nasdaq Composite also advanced, though the Dow Jones Industrial Average declined. European markets closed higher following the EU-India deal announcement.

• Potential U.S. Government Shutdown: A partial U.S. government shutdown could begin early Saturday. The risk stems primarily from strong Senate Democratic opposition to funding for the Department of Homeland Security and other agencies following the recent killing of a U.S. citizen by federal agents in Minneapolis.

• Anthropic Secures Major Funding: The AI company closed a funding round totaling between $10 billion and $15 billion, exceeding its $10 billion target. According to sources, the round was led by Coatue and Singapore's sovereign wealth fund GIC.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Justin

Forex

Economic

The Australian dollar paused near three-year peaks on Wednesday as a selloff in the greenback turned into a rout, while a hot set of inflation figures at home ramped up the chance of a rate hike as soon as next week.

The Aussie was enjoying the view at $0.6994 , climbing 1.4% overnight to as high as $0.7016. That was the first visit to 70 cents since early 2023 and left the Aussie up more than 4% in just five sessions. The breach of the $0.69435 resistance triggered further momentum buying and targets $0.7158 next.

It got a further lift when Australian data showed a key trimmed mean measure of core inflation rose 0.9% in the December quarter, above forecasts of a 0.8% increase.

The annual pace quickened to 3.4%, up from 3.0% the previous quarter and the fastest in more than a year. It was also above the Reserve Bank of Australia's target range of 2% to 3%, setting the scene for a hike when it meets on February 3.

Markets now imply a 70% probability of a quarter-point rise in the 3.6% cash rate, up from 60% before the data. An increase to 3.85% is fully priced in by May, with 4.10% seen by September. (0#AUDIRPR)

Analysts at ANZ responded by changing their call to a hike next week, though they assumed it would be one and done, as inflation should moderate through this year.

Abhijit Surya, a senior APAC economist at Capital Economics, looks for rate rises in both February and May.

"Household spending has been growing strongly, business investment is rising in tandem, and the labour market is also tightening," he argued. "All of these factors will fuel the RBA's concerns that the economy is operating above potential."

Yields on 10-year bonds were left at 4.82%, after hitting their highest since late 2023 overnight at 4.901%. The spread over Treasuries stood at 58 basis points, offering an attractive premium to the out-of-favour U.S. dollar.

The New Zealand dollar was also firm at $0.6030 , after surging 1.2% overnight to clear $0.6007 resistance. The next targets are $0.6059 and $0.6120.

The Reserve Bank of New Zealand next meets on February 18 and is considered certain to hold rates at 2.25%, though again investors believe the next move will be up.