Yen Hits Multi-Month High as Intervention Talk Grows

Canadian Prime Minister Mark Carney on Tuesday forcefully denied claims from the U.S. Treasury Secretary that he had backtracked on critical remarks about the Trump administration’s global economic policies.

Speaking to reporters in Ottawa, Carney insisted he stood by his recent speech in Davos, Switzerland, where he had challenged the current U.S.-led world order.

"To be absolutely clear, and I said this to the president, I meant what I said in Davos," Carney stated, directly refuting comments made by Treasury Secretary Scott Bessent.

Figure 1: Canadian Prime Minister Mark Carney addresses the House of Commons in Ottawa, where he publicly reaffirmed his government's stance on global trade policy.

The Davos Speech That Sparked a Diplomatic Firestorm

The dispute stems from Carney's address to the World Economic Forum, which earned a rare standing ovation. In his speech, the Prime Minister declared that the established global order was in the "midst of a rupture" and warned that the "bargain" of American hegemony "no longer works."

He added that "great powers" have exploited and weaponized economic tools like tariffs—a pointed critique delivered as President Donald Trump was pressuring Europe over the potential U.S. purchase of Greenland from Denmark.

Carney explained on Tuesday that his speech reflected "that Canada was the first country to understand the change in U.S. trade policy that he [Trump] had initiated, and we're responding to that."

Washington's Pushback and Tariff Threats

The U.S. administration's response was swift and critical. In a Fox News interview on Monday, Bessent claimed that during a phone call with Trump earlier that day, Carney was "very aggressively walking back some of the unfortunate remarks he made at Davos."

President Trump also criticized the Canadian leader, accusing him and his country of being ungrateful. The White House followed by rescinding Canada's invitation to join the "Board of Peace."

Over the weekend, the situation escalated when Trump threatened to impose a 100% tariff on Canadian imports if Ottawa proceeds with a trade deal with China.

Carney Clarifies Call with Trump

Carney confirmed the call with Trump took place, noting that the U.S. president had initiated it. He said they discussed several topics, including the war in Ukraine and "Arctic security," a reference to the Greenland controversy.

However, he firmly rejected the characterization of the conversation. When asked directly if he had walked back his Davos remarks, Carney gave a simple answer: "No."

He said the context of the call was to highlight "what Canada is doing positively to build new partnerships around the world," including "our arrangement with China."

In response to the Trump administration's unpredictable use of tariffs, Canada and other U.S. trading partners have been actively forging new economic ties with other major economies. Carney told reporters he boasted to Trump that Canada had secured "12 new deals on four continents in six months," adding that the president "was impressed."

Despite the tariff threats, Carney stated on Sunday that Canada does not currently intend to pursue a full free trade agreement with China. The U.S. Treasury Department has not yet responded to requests for comment on Carney’s latest remarks.

The Brazilian real surged to its strongest level since May 2024 on Tuesday, closing at R5.20 against the US dollar. The currency's impressive performance marks a nearly 14% appreciation over the past 12 months, driven by a combination of domestic policy and a global decline in the dollar.

The real has been on a sharp upward trend since December 23, when it traded near R5.59 to the dollar.

Brazil's High Interest Rates Attract Capital

A key driver behind the real's strength is the central bank's firm monetary policy. According to Milene Dellatore, a director at Brazilian prop firm MIDE, the bank's decision to maintain its target rate at 15% since last June has been a major factor.

Policymakers are expected to hold rates steady at their meeting on Wednesday, with potential cuts not anticipated until March. This high-rate environment makes Brazilian assets attractive to global investors.

Further supporting the currency are two additional factors:

• Cooling Inflation: Brazil's headline inflation slowed to an annual rate of 4.26% in December, coming in lower than market forecasts.

• Institutional Stability: A widespread perception of short-term stability in the country is creating a favorable moment for global capital to flow into Brazil, Dellatore noted.

A Weaker US Dollar Provides a Global Tailwind

The real's rally is also a story about the US dollar's global retreat. The US Dollar Index (DXY), which measures the greenback against six major currencies, fell for a fourth straight session on Tuesday, hitting its lowest point since February 2022.

Several issues in the United States are weighing on its currency. Dellatore pointed to political uncertainty, including what she described as "President Donald Trump's more volatile rhetoric," as a source of downward pressure.

Fears of a potential US government shutdown have also contributed to the dollar's weakness this week. As a result, Dellatore added, investors are actively seeking opportunities in emerging markets and other assets outside the US.

All Eyes on Central Bank Meetings

Investors are now closely watching the outcomes of monetary policy meetings in both countries. The US Federal Reserve is set to conclude its first meeting of the year on Wednesday, where it is widely expected to leave the federal funds rate unchanged. Brazil's central bank is also anticipated to hold its policy rate steady, reinforcing the current dynamics that favor the real.

The Trump administration has put South Korea on notice, threatening to hike tariffs to 25% unless Seoul takes immediate action to implement a six-month-old trade agreement. According to U.S. officials, the move stems from growing frustration in Washington over perceived delays and broader tensions involving digital service regulations.

President Donald Trump’s latest tariff threat brings to a head simmering disputes in the U.S.-South Korea trade relationship. While the administration insists the tariff issue is separate from other grievances, friction over Seoul's handling of U.S. technology firms has amplified the discord.

On Monday, Trump announced his intention to raise tariffs on South Korean goods from the current 15% rate to 25%. Although the declaration was made on social media, the administration has not yet formally implemented the increase, leaving room for negotiation.

A Stalled Agreement Sparks Tariff Threats

The primary driver behind the tariff threat is the perception that South Korea has failed to uphold its side of the trade pact announced last July. People familiar with the matter say Washington feels Seoul is dragging its feet on ratifying the deal, prompting the U.S. to reconsider its own commitments.

U.S. Trade Representative Jamieson Greer confirmed he spoke with South Korean officials Tuesday morning and said a team from Seoul would visit Washington for further talks later in the week.

In a Fox Business interview, Greer laid out Washington's specific complaints. "They haven't been able to get a bill through to do the investment, they've introduced new laws on digital services, they haven't done what they needed to do on agriculture and industry," he said. "And so it's hard to continue to hold up our end of the bargain while they have not moved forward swiftly enough on their end."

A South Korean bill to formalize investment commitments under the deal was introduced last November. However, its passage has stalled due to domestic concerns over capital outflows, currency volatility, and the project selection process.

Tech Tensions Add Fuel to the Fire

While officials maintain that digital regulations are not the direct cause of the tariff threat, they remain a significant point of contention.

Last week, Vice President JD Vance met with South Korean Prime Minister Kim Min-seok in Washington and reportedly warned him against penalizing American tech companies. A key example cited was Coupang Inc., a popular U.S.-based e-commerce retailer currently under scrutiny in South Korea for a data breach.

The Coupang case has intensified scrutiny. The company disclosed a data breach in November that impacted roughly two-thirds of South Korea's population. In response, a major shareholder, Greenoaks Capital Partners LLC, petitioned the Office of the U.S. Trade Representative to launch a formal trade probe. Separately, U.S.-based shareholders, including Greenoaks and Altimeter Capital Management LP, have submitted a notice of intent under the Korea–U.S. free trade agreement.

During a meeting with U.S. lawmakers, Prime Minister Kim insisted that his government was not discriminating against Coupang. A White House official noted that concerns over the treatment of U.S. digital service providers predate and extend beyond the ongoing Coupang case.

Trump's Playbook of Global Trade Pressure

This episode fits a familiar pattern in the Trump administration's approach to trade. The president has frequently used tariff threats to pressure partners, creating widespread uncertainty. Similar threats have recently been aimed at Europe, Canada, and nations doing business with Iran.

U.S. officials have openly criticized other nations for what they see as slow implementation of trade promises. Greer has expressed frustration with the European Union, and Indonesia has also faced criticism. In contrast, a White House official highlighted Japan as a country that is moving more quickly to deliver on its trade commitments.

However, many of Trump's tariff threats do not come to full fruition. Data compiled by Bloomberg shows that only about 27% of such threats made since late 2024 were fully executed.

What's Next for the U.S.-Korea Partnership

Despite the stern warning, President Trump has suggested a resolution is possible. "We'll work something out. We'll work something out with South Korea," he told reporters on Tuesday.

The stakes are high. If the 25% tariffs are implemented, they could have significant consequences for major South Korean exporters. For example, Hyundai Motor Co. shipped 1.1 million vehicles to the United States in 2024. The situation remains fluid as both sides prepare for another round of discussions, with the global markets watching closely.

The Federal Reserve’s recent balance sheet operations are showing early signs of success in stabilizing critical funding markets, while in Europe, Germany is rewriting its debt issuance strategy with a blockbuster bond sale.

The Federal Reserve is signaling success in its efforts to manage market liquidity through its balance sheet adjustments.

Fed's Bill-Buying Program Calms Repo Market

Since restarting its bills-buying program, the Federal Reserve has added approximately $65 billion in assets, bringing its total holdings of Treasury bills to nearly $260 billion. During the same period, about $20 billion in mortgage-backed securities (MBS) rolled off its balance sheet. Coupled with a rise in government bond holdings, the Fed's net securities holdings have increased by $55 billion since mid-December 2025.

This expansion has been partially offset by a rise in the Treasury's cash balance due to tax inflows, leaving bank reserves steady at around $3 trillion.

The primary goal of this initiative—to calm the repo market—appears to be succeeding. Conditions have eased, addressing the perceptions of liquidity tightness that prompted the Fed to act. However, the effective federal funds rate remains elevated. It now stands 14 basis points above the Fed's floor, compared to 8 basis points previously.

While a small margin, this upward drift is an irritation for the Fed and was a key trigger for the bills-buying program. The effective funds rate is currently just 1 basis point below the interest rate paid on excess reserves, which should theoretically function as a ceiling.

Despite this, the Fed will likely view the overall outcome as positive given the net calming of repo market conditions. No further action is expected at this time. The strategy will continue to focus on increasing bills holdings while reducing MBS holdings and maintaining its government bond portfolio, which accounts for just over half of the Fed's total $6.2 trillion in assets.

Germany's New 20-Year Bond Sees Record Demand

Germany successfully sold €6.5 billion of a new 20-year bond, attracting a near-record order book of €73 billion. This is the first time Germany has launched a new benchmark at this maturity.

The move is part of a broader strategic shift for two key reasons:

• To spread out increasing funding requirements.

• To adapt to the Dutch pension reform, which is anticipated to reduce structural demand for longer 30-year bonds.

This rethink of issuance strategy is not unique to Germany; other countries, including the Netherlands and Slovenia, are making similar adjustments. This trend should help ultra-long bonds move away from their cheap valuation relative to swaps as supply and demand find a better balance. However, the ultra-long end of the curve could still resteepen as pension funds continue to adjust their hedging strategies.

What to Watch: Fed Decision and Bond Auctions

Markets are looking ahead to a week of key central bank communications and debt sales.

The main event is the Federal Reserve's monetary policy decision. While no change in policy is expected, the market will focus intensely on the accompanying communication, any signs of dissent among officials, and commentary around the Fed's independence. President Trump's upcoming selection of a new Fed Chair adds another layer of scrutiny.

In the eurozone, the data calendar is light. A presentation by ECB official Isabel Schnabel during the European evening is the only event of potential note.

In primary debt markets, several auctions are scheduled:

• Germany: Selling €6 billion in 10-year Bunds.

• Portugal: Auctioning up to €1.25 billion in 5-year and 10-year bonds.

• United States: The Treasury will sell $30 billion in new 2-year floating rate notes.

Gold prices are enjoying their best start to a year since 1980, holding firm above $5,000 an ounce with a gain of nearly 18%. While the precious metal appears well-supported with enough momentum for further gains, one analyst is sounding the alarm on silver, warning that its historic rally has entered bubble territory.

What's Fueling Gold's Rally?

According to Ole Hansen, Head of Commodity Strategy at Saxo Bank, speculative momentum could push gold prices as high as $5,500 an ounce. In a recent note, he pointed to several well-known, concern-driven factors supporting the metal:

• Fiscal Worries: Unchecked government debt creation.

• A Weaker Dollar: A potential decline in U.S. exceptionalism, causing capital to rotate elsewhere.

• Geopolitical Risk: Global uncertainty, amplified by an unpredictable U.S. president.

• Inflation Concerns: Lingering fears of rising prices.

However, Hansen clarifies that most of these fears have not fully materialized. While U.S. fiscal debt is rising, markets have so far responded mainly with a steeper yield curve. The dollar has weakened but not collapsed, and geopolitical tensions have yet to escalate into more disruptive events.

Analyst Expects Consolidation, Not a Crash

Despite the potential for safe-haven demand to cool, Hansen does not foresee a major correction for gold. Instead, he anticipates a different path forward.

"We see a growing risk of a prolonged period of consolidation rather than an imminent major correction," he stated, adding that "the broader structural case for gold remaining intact."

Silver's Record Rally Raises Bubble Concerns

While Hansen remains constructive on gold, his outlook for silver is far more cautious. The metal is experiencing its best start to a year on record, dating back to 1972. Spot silver is trading around $109 an ounce, up more than 52% in the first month of 2026 alone. This comes after a nearly 150% rally throughout 2025.

"While gold's ascent continues to be orderly without many signs of a bubble emerging, silver has clearly moved into bubble territory," Hansen warned. He identified retail participation, speculative positioning, and a fear of missing out (FOMO) as the primary drivers pushing silver to historically expensive levels relative to both gold and platinum.

Why Silver's Surge Could Backfire

Hansen highlighted two major risks stemming from silver's parabolic rise. First, the historic rally could trigger significant demand destruction within the industrial sector, which accounts for approximately 60% of annual silver demand. Second, rising volatility threatens to create disorderly market conditions.

He expects the supply-demand balance to improve as the rally encourages consumers to sell back their holdings. "Consumers worldwide [will] take advantage of the rally by selling back long-held bars, jewellery and silverware after a seven-fold price increase over the past decade," he explained.

For investors seeking strategic exposure to hard assets, Hansen’s advice is clear: stick with gold. He argues that underlying demand from central banks should continue to shield the yellow metal from a major correction, making it the superior choice.

Iran's oil industry is caught in a complex economic trap. Under sanctions first imposed during Donald Trump's presidency, Tehran has managed to not only sustain its oil sector but also increase production. However, this growth in output masks a harsh reality: soaring production does not necessarily translate into higher revenue.

China: A Lifeline with a High Price

The primary reason Iran’s oil industry has survived, and even expanded, is China. With its massive appetite for crude oil, China has become the sole major buyer for sanctioned Iranian barrels, effectively providing a lifeline that has also supported Venezuela's sanctioned oil sector.

This dependency has created a buyer's market. With no other significant customers, Iran is forced to offer deep discounts, significantly cutting into its potential profits. For years, Tehran has relied on a single, powerful buyer that dictates the terms.

The Hidden Costs of Evading Sanctions

Beyond discounted prices, Iran faces a significant financial drain from the complex logistics required to circumvent sanctions. The process of getting oil to market is now riddled with expensive operational hurdles:

• Ship-to-ship transfers at sea add operational complexity and cost.

• Reflagging tankers to hide the oil's origin is another necessary but costly measure.

• Avoiding U.S. forces on patrol adds further logistical burdens and expenses.

In short, while Iran is selling more oil today than it was five years ago, the cost of each sale has climbed substantially, squeezing profit margins even further.

New Competition from Venezuela

The situation is becoming more challenging with recent developments in Venezuela. As Washington has eased restrictions, Venezuelan oil is now being sold freely on the global market. This gives buyers a new source of sanction-free crude, making it an attractive alternative to Iranian oil, which still carries the risk and hassle of sanctions compliance.

Despite these headwinds, Iran continues to push for growth. Last month, Oil Minister Mohsen Paknejad announced that Tehran is actively seeking international partners for "golden investment opportunities" in its oil and gas sectors. He noted that Iran has already secured contracts with "friendly nations," a point made during a meeting with Belarusian energy minister Andrei Kuznetsov late last year.

This strategy is straightforward: when you are forced to sell a product cheaply, you compensate by selling more of it. Iran is betting on higher volumes to make up for lower per-barrel revenue.

China's Demand and Geopolitical Risk

Whether this strategy succeeds remains to be seen, especially with Venezuela back in the market. However, China's oil demand continues to be a powerful supportive factor. Last year, Chinese crude imports hit an all-time high of 11.55 million barrels per day, totaling 557.73 million tons—a 4.4% increase from 2024. This robust demand has helped support global oil prices, which benefits all producers, including Iran.

Ironically, recent threats against Iran from the Trump administration have also contributed to stronger oil prices. Analysts are already revising their forecasts upward to account for the heightened risk of a U.S. strike. While higher prices could boost Tehran's revenues, an actual military conflict would be devastating. In such a scenario, Iran's oil facilities would become prime targets, and the ultimate price of conflict could prove far too high.