The regulator is expected to keep the interest rate in the 3.50–3.75% range, where it has remained following a series of cuts in 2025, and to reduce the likelihood of further easing until mid-2026, as analysts note that officials in the current cycle are taking a wait-and-see approach and prioritizing economic data analysis before deciding on further policy adjustments. In addition, President Donald Trump, whose authority to appoint the Fed Chair expires with the end of Jerome Powell’s four-year term in May 2026, is considering an early announcement of his successor, with BlackRock executive Rick Rieder among the leading candidates. This adds uncertainty to markets and could influence investor expectations regarding the future direction of monetary policy.
The situation is further complicated by reports of a possible coordinated US-Japan currency intervention aimed at halting the yen’s decline. Combined with the monetary pause and political instability, this increases dollar volatility and keeps uncertainty elevated, signaling the Republican administration’s willingness to tolerate a weaker national currency to support exports. Additional pressure on the dollar stems from unprecedented political uncertainty, as well as domestic and foreign policy actions by the Trump administration. Inconsistent White House decisions, including escalating demands regarding Greenland, have seriously undermined investor confidence in the dollar as a safe asset. Markets have begun to price in a political risk premium, triggering capital outflows from dollar-denominated assets. An indicator of extremely negative expectations has been record demand for options that profit from further dollar weakness; premiums on such short-term contracts have reached their highest levels since records began in 2011. Against this backdrop of capital reallocation, the euro is strengthening, although the eurozone’s fundamental environment, while showing signs of improvement, remains restrained and mixed. A key positive signal came from Germany, where the economy in 2025 posted growth of 0.2% for the first time since 2022, while construction activity indicators and overall economic sentiment reached multi-year highs.
This has led some analysts to speak of the first convincing signs of economic recovery in the region after a prolonged period of stagnation. Political instability in France has also eased, as the government successfully survived no-confidence votes that previously weighed on the single currency. Nevertheless, the bloc’s economic growth is driven largely by a sharp increase in defense spending amid the ongoing conflict between Russia and Ukraine. Social spending is often being cut; energy prices in January remain around $95.0 per barrel for Brent crude, while inflation in December stood at 5.1% year-on-year, well above the European Central Bank’s target range. Tomorrow at 12:00 (GMT+2), January business sentiment data will be released: analysts expect the eurozone economic sentiment index to rise from 96.7 to 97.0 points, while overall consumer confidence is likely to remain at –12.4 points.
GBP/USD
The pound is losing ground against the US dollar, consolidating near the 1.3800 level and the record October 2021 highs: the market continues to see significant weakness in the US currency amid an unstable news backdrop from the United States. The dollar index has lost more than 2.0% in January, reaching four-year lows, driven by inconsistent domestic and foreign policies of the Trump administration that undermine the appeal of dollar-denominated assets. Geopolitical instability directly affects monetary policy expectations: markets are closely watching the Fed meeting, where Jerome Powell’s overall tone could begin to soften.
However, Powell will step down in May after completing his second four-year term, and the name of the next Fed Chair remains unknown, though it is likely to be a candidate loyal to the Republican White House. Meanwhile, the UK economy is showing signs of gradual recovery: according to International Monetary Fund forecasts, in 2026 it could rank third among G7 countries in terms of growth, behind only the US and Canada, partly thanks to investment in artificial intelligence technologies. In addition, December inflation unexpectedly accelerated to 3.4% year-on-year, exceeding market expectations of 3.3%. The market reaction was muted, as traders view this as a temporary fluctuation. Inflation is expected to slow sharply in coming months due to base effects, as last year’s spike in regulated utility tariffs drops out of annual comparisons. Retail sales data released yesterday strengthened optimistic forecasts, showing annual growth of 1.5% in January, up from just 0.7% the previous month.
AUD/USD
The Australian dollar is correcting lower in the AUD/USD pair, holding near 0.7000 and the record February 2023 highs. The recent bullish trend, marking the strongest weekly gain since April, is being driven by two key factors: US dollar weakness and market expectations of tighter monetary policy from the Reserve Bank of Australia (RBA). Pressure on the US currency is multifaceted, reflecting both fundamental and political risks that heighten market volatility. In addition, geopolitical tensions and fiscal uncertainty have intensified dollar pressure: the US Congress continues to battle over approval of a roughly $1.3 trillion budget, and without agreement on the remaining six bills, federal agency funding could be suspended as early as January 31, 2026, raising the risk of another shutdown. Democrats are demanding changes to Homeland Security funding, insisting it be separated from the overall package, while the Republican majority seeks to pass all bills together before midnight on January 30. Failure to reach a compromise would threaten the operation of multiple federal services, further destabilizing market sentiment and accelerating capital outflows from risk assets. Australia’s fundamentals appear more resilient, creating a supportive backdrop for currency strength. The economy shows signs of a “soft landing”: GDP growth remains stable (0.4% in Q3 2025, 2.1% year-on-year), the labor market strengthened unexpectedly in December with unemployment falling to 4.1%, and business activity in manufacturing and services remains firmly in expansion territory. However, inflation remains the central theme shaping market sentiment: progress in disinflation is slow, and key indicators remain above the RBA’s 2.0–3.0% target range. Recent macro data confirmed these concerns: December CPI rose from 3.5% to 3.6% year-on-year and from 0.0% to 1.0% month-on-month versus a 0.7% forecast. Q4 2025 inflation surged from 3.2% to 3.8% year-on-year, beating expectations of 3.6%, while quarterly inflation slowed from 1.3% to 1.0% versus a 0.7% estimate, and trimmed mean inflation in December rose from 3.2% to 3.3%. Meanwhile, US investors are focused on today’s Fed decision at 21:00 (GMT+2): markets are confident the rate will remain at 3.75%, but the tone of guidance will be crucial, as any hints of earlier easing would pressure the dollar.
USD/JPY
The US dollar is gaining in the USD/JPY pair, rebounding from late-October lows set yesterday: the instrument is testing the 152.60 level for an upside breakout, supported by technical factors. In particular, investors are covering short positions and taking profits ahead of today’s Fed decision. There is little doubt the rate will remain at 3.75%, but Jerome Powell’s tone could soften somewhat given the downward trend in consumer inflation. At the same time, the yen remains extremely vulnerable amid an unprecedented collapse in Japan’s government bond market, with total outstanding debt estimated at around $7.3 trillion. Last week, yields on 40-year bonds broke above 4.0% for the first time, while daily swings in 30-year bonds exceeded 25 basis points — moves that previously took months. Japan’s sovereign bond curve lost $41.0 billion in value in a single day. Inflation in Japan has exceeded the 2.0% target for four consecutive years, dismantling the long-standing deflationary paradigm and forcing markets to demand a higher risk premium for holding Japanese debt, which has reached 230% of GDP. Meanwhile, Prime Minister Sanae Takaichi, seeking support ahead of snap elections on February 8, is actively promoting plans to increase fiscal spending. Promises to ease the cost-of-living burden without a clear financing plan are seen by markets as a direct path to higher public debt. Debt sustainability concerns are pushing yields higher, raising debt-servicing costs and further weakening the yen. This situation poses risks to the global financial system. According to Goldman Sachs analysts, every 10-basis-point rise in Japanese bond yields adds 2–3 basis points to rates in the US and other developed markets, implying that the Fed and ECB could face unwanted tightening of financial conditions. Japanese institutional investors hold over $5.0 trillion in overseas assets. Now that 30-year Japanese bond yields exceed those of Germany and China, domestic assets have become sharply more attractive. Major players, including Sumitomo Mitsui Financial Group, have already announced plans to repatriate funds. Large-scale capital repatriation could destabilize US and EU bond markets, triggering a sharp global rate spike.
XAU/USD
The XAU/USD pair has resumed its upward trend after uncertain trading on Monday, testing the 5265.00 level and updating record highs amid growing concerns about global financial system stability. The fundamental driver remains US dollar weakness, which many analysts believe has further downside potential. The dollar is under pressure from expectations of looser Fed policy, a high budget deficit, and broader economic uncertainty linked to White House policy. The dollar index fell about 8.0% in 2025, and banks such as Morgan Stanley and ABN Amro forecast further weakening in 2026. Since gold is priced in dollars, a cheaper greenback makes it more attractive to foreign buyers, naturally supporting prices. However, gold’s rally goes beyond simple inverse correlation, as evidenced by gains in euros and pounds, pointing to deeper structural demand. Central bank purchases continue to provide strong support: for the past three years, they have been net buyers of over 1,000 tonnes annually to diversify reserves. Even at record price levels, demand remains robust. JPMorgan analysts expect financial institutions to purchase an average of 190 tonnes per quarter in 2026. This trend is reinforced by emerging market countries seeking to increase gold’s share of reserves, which has risen globally from 15.0% at the end of 2023 to nearly 20.0% by the end of 2024. At the same time, private investor demand is growing, both institutional and retail, as gold is viewed as a reliable hedge. Combined quarterly demand from investors and central banks in 2026 could average around 585 tonnes, well above the level needed to sustain the bullish trend.
