FX markets enter the month influenced by uncertain growth momentum, inflation dynamics and central bank policy, yield sensitivity, and shifts in how markets are pricing geopolitical risk.

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Quick facts:

• USD remains primarily responsive to inflation data, and this may have overtaken growth as the main driver.
• JPY sensitivity to potential Bank of Japan (BOJ) action remains high, creating asymmetric responses to global rate moves and policy communication.
• EUR and AUD continue to trade reactively to global events and commodity price moves.
• Volatility may be episodic, clustering around key data releases rather than a single sustained directional trend.

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With central bank expectations still evolving into the first quarter (Q1), key releases and policy communication are likely to stay central to near-term FX pricing. In this environment, moves may cluster around scheduled events and headline risk, rather than build into a single dominant trend.

US dollar (USD)

Key data and events:

• Non-farm payrolls (Employment Situation, Dec 2025): 9 January 2026 Bureau of Labor Statistics
• CPI (Dec 2025): 13 January 2026 Bureau of Labor Statistics
• Fed rate decision: 27-28 January 2026 Federal Reserve
• Advance GDP (Q4): rescheduled (date TBA) U.S. Bureau of Economic Analysis

What to watch:

USD performance remains closely tied to inflation data and what it could mean for Federal Reserve policy expectations. Market pricing can shift quickly around CPI and labour-market outcomes, particularly where outcomes affect how investors perceive the timing and pace of any policy changes.

Jobs data and GDP numbers will be watched as gauges of growth momentum. The start of the US earnings season may also influence FX indirectly through its impact on equity performance, risk sentiment, and yield expectations, rather than acting as a direct currency driver.

Key chart: US dollar index (DXY) weekly chart

Periods of market uncertainty can support USD demand around prior support areas near 97, while the 100 region may continue to act as a reference point for resistance, including where it aligns with commonly watched moving averages (noting technical indicators can fail).

A break in either direction may reflect shifting expectations about how different central banks will respond to the next run of inflation and growth data.

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Euro (EUR)

Key data and events:

• CPI (Euro area HICP, Dec 2025 reference period): 19 January 2026 European Central Bank
• ECB rate decision: 5 February 2026 European Central Bank

What to watch:

European Central Bank (ECB) messaging on policy direction and inflation remains key. A prolonged hold is one scenario market participants continue to debate, but outcomes are likely to remain data-dependent and sensitive to changes in the growth and inflation backdrop.

The geopolitical situation in Ukraine will also remain in focus.

Key chart: EUR/USD weekly chart

Differences in likely central bank direction could support a test of the top end of the current multi-month range near 1.18. A sustained break above that level would be technically significant.

For now, price may stay range-bound until there is clearer guidance on policy direction on both sides of the Atlantic.

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Japanese yen (JPY)

Key data and events:

• BOJ policy decision: 22–23 January 2026 Bank of Japan
• Tokyo core CPI (Ku-area of Tokyo, preliminary; Dec 2025 reference month): 23 January 2026 Statistics Bureau of Japan

What to watch:

Following the BOJ’s December rate rise, markets appear to be weighing the likelihood of further action in Q1. Whether the January meeting delivers another move remains uncertain and may depend on incoming inflation and wage signals, as well as BOJ communication.

Data released ahead of the decision may be important in shaping expectations.

Key chart: GBP/JPY daily chart

As of 7 January 2026, GBPJPY has traded around the 211.50 area, near levels last seen in 2008. Continued consolidation may suggest fresh drivers are needed to extend gains.

If the cross fails to move higher, a retracement toward 210.00 is possible. If expectations for BOJ action rise, further selling could extend toward more established support near 208.00.

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Australian dollar (AUD)

Key data and events:

• CPI (Complete Monthly CPI; Nov 2025 reference month): 7 January 2026 Australian Bureau of Statistics
• Employment (Labour Force; Dec 2025 reference month): 22 January 2026, Australian Bureau of Statistics
• RBA rate decision: 3 February 2026 (Monetary Policy Board meeting 2–3 February) Reserve Bank of Australia

AUD continues to behave as a proxy for global growth sentiment and commodity demand.

Stabilisation in Chinese data, firmer commodity prices, and expectations around the Reserve Bank of Australia (RBA) policy path may be providing relative support for AUD. Sensitivity to broader risk conditions remains high.

Key chart: EUR/AUD daily chart

Moves in commodity prices have coincided with a sharp fall in EURAUD since the 31 December close, breaking down out of the prior range. The next key level to the downside sits at 1.7305.

The area around 1.7305 may help indicate whether selling pressure is continuing or whether momentum is fading for now. Near-term commodity price moves are likely to remain important.

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Bottom line

FX conditions this month may remain reactive, with volatility clustering around key data releases rather than a sustained directional trend. With Q1 central bank expectations still forming, price moves may be sharper around the calendar, policy communication, and geopolitical headlines.

Global markets are calm but alert in response to the US–Venezuela situation, with US and European equities holding near or testing record levels.

Gains in energy, defence and materials suggest selective positioning. Modest strength in gold and lower yields is indicative of hedging rather than market fear, with oil prices remaining muted.

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Quick facts

• US and European equity indices are holding near record highs despite geopolitical headlines. Volatility remains low through the trading session.
• Energy and defence stocks are leading gains, with materials stocks responding to mild gains in previous metals, reflecting selective risk positioning.
• Gold is edging higher, and government bond yields have dipped slightly, signalling mild hedging.
• Oil prices remain range-bound, suggesting no immediate supply shock is being priced in.
• Markets could be sensitive to further geopolitical developments, with any escalation a major potential risk to sentiment.

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US–Venezuela tensions escalation has prompted heightened geopolitical scrutiny across the globe, not only related to this action itself but other geopolitical longer-term implications. 

There has been a muted and measured response across global financial markets so far, with little significant negative impact evident for now. 

Some sectors have had noteworthy gains, whilst the impact on other asset classes has again been calm.

US equities 

What’s happening:

US equity markets are showing resilience, with the S&P 500 holding near recent highs and the Dow Jones Industrial Average up 1.23%, pushing into fresh record territory.

What to watch:

• If US indices continue to hold above recent breakout levels, then markets are reinforcing the view that geopolitical risk remains manageable.
• Rising volatility, if seen in the VIX index, may indicate that sentiment may be shifting from selective risk-taking to broader caution.

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European equities

What’s happening:‍

European markets are modestly higher, with the DAX trading at record levels and the FTSE 100 closing over 10,000 for the first time.

What to watch:

• For now, European indices appear to be tracking US strength, suggesting investors are viewing the event as externally contained. Similar sectors are performing well, as seen in overnight US equity performance. 
• It is unlikely that we will see any specific regional response, though tensions related to the US administration's narrative around Greenland is noteworthy.

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Specific sector moves

‍Energy stocks

What’s happening:‍

Energy stocks are leading equity gains across the US (e.g. Chevron Corp – CVX up 5.1%), and European markets, with the potential for increased influence in Venezuela of US oil companies.

What to watch:

• While energy equities outperform while oil prices remain range-bound, then markets are pricing geopolitical caution rather than immediate disruption. If this is accompanied by a rise in crude prices rise together, then it may be indicative of supply risk
  

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Defence stocks

What’s happening:‍

Defence stocks are attracting some investor interest. (E.g. Lockheed Martin – LMT up 2.92%, General Dynamics – GD up  3.54%).

What to watch:

• Continued outperformance with other sector equity drawdowns may be indicative of some escalation concerns.

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‍Materials & miners

What’s happening:‍

Materials and mining stocks are finding support alongside modest gains in precious metals and record highs in copper. The S&P Metals & Mining ETF – XME closed 3.28% up.

What to watch:

• Ongoing materials strength alongside stable growth indicators, then the current move may reflect real-asset demand rather than simply a hedging approach. If gold accelerates higher while base metals fail to follow, then investor defensive positioning may be overtaking confidence in growth.

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Crude oil

What’s happening:‍

Oil prices remain subdued, with the futures trading at $58.40, within recent ranges, despite the unfolding geopolitical situation. 

What to watch:

• Venezuelan influence on global oil production is not substantial enough on its own to create any major issues in the short term with global oil supply at high levels.
• As a result, the impact is more likely to remain muted, but any significant rises in oil price across multiple sessions may be indicative of some market concerns related to increases in geopolitical-influenced supply expectations.

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Gold

What’s happening:‍

Gold prices are currently edging higher towards all-time highs, reflecting a modest safe-haven play. The closing price for Gold futures is $4454, breaching the psychologically important $4400.

What to watch:

• If gold continues to rise gradually while equities remain firm, then the move reflects a standard hedging approach to assets rather than fear. 
• A spike in gold price alongside falling equities and rising volatility, maybe a signal that market risk may be increasing.

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Treasury yields

What’s happening:‍

Yields have eased slightly, indicating a potential selective defensive positioning in asset choice by institutional investors. (10-year Treasury yields at 4.153%, down 0.36%)

What to watch:

• If yields should fall sharply alongside equity weakness, then markets may be shifting toward a risk-off approach.

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What to watch next

• If asset-class correlations remain contained, then markets are maintaining confidence in the broader macro backdrop. 
• If tensions escalate into broader regional instability or prolonged policy responses, Sharp movements across equities, bonds, and commodities may signify a reassessment of risk.
• If geopolitical developments fail to translate into sustained price dislocation, then the current response is likely to fade.

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(All prices quoted correct as of 4.30pm NY time after market close).

January’s market action often matters more than simply marking the opening of the calendar year. Institutional positioning resets, testing of economic assumptions, and early price moves reflect how market participants interpret the first meaningful signals of the year.

While January rarely determines full-year outcomes, it frequently shapes the narratives markets carry into the first quarter (Q1).

Four critical levers: growth, labour, inflation, and policy, can provide an early indication of how markets are processing and prioritising incoming information.

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Growth: manufacturing PMIs

January’s first growth test comes from the manufacturing surveys, with markets watching whether signals from S&P Global Manufacturing PMI and ISM Manufacturing PMI tell a consistent story.

Key dates:

• ISM Manufacturing PMI: 5 January, 10:00 AM (ET)/ 6 January, 1:00 AM (AEDT)

What markets look for:

Attention often centres on new orders as a forward-looking indicator of demand, alongside prices paid for early insight into cost pressures.

Broad strength across both surveys would support the narrative that the growth momentum seen toward the end of 2025 may extend into early 2026, easing some concerns about a sharper slowdown. Weaker or conflicting readings would keep the growth outlook uncertain, rather than decisively negative.

How it tends to show up in markets:

Firmer growth signals often appear first in higher short-dated Treasury yields. Rising yields can tighten financial conditions, weigh on equity valuations, and support the USD, with spillover effects across foreign exchange (FX) and commodity markets.

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Labour: job openings and payrolls

While early-January Non-Farm Payrolls (NFP) often drive short-term volatility, JOLTS job openings may be more influential in shaping January’s policy narrative.

Key dates:

• JOLTS Job Openings: 7 January, 10:00 AM (ET)/ 8 January, 1:00 AM (AEDT)
• Non-Farm Payrolls (NFP): 9 January, 8:30 AM (ET)/ 10 January, 12:30 AM (AEDT)

What markets look for:

Markets often treat JOLTS as a clearer indicator of underlying labour demand than month-to-month hiring flows.

A continued drift lower in openings would support the view that labour demand is easing in an orderly way, reinforcing confidence that inflation pressures can continue to moderate. A rebound or stalled decline would suggest labour conditions remain firmer than expected.

Market sensitivities:

For markets, easing labour demand typically supports lower short-dated yields and a softer USD, while persistent tightness can push yields higher, strengthen the USD, and increase volatility across rate-sensitive assets.

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Inflation: PPI and CPI

Key Dates:

• PPI: 14 January, 8:30 AM (ET)/ 15 January, 12:30 AM (AEDT)
• CPI (December 2025 data): 15 January, 8:30 AM (ET)/ 16 January, 12:30 AM (AEDT)

The inflation signal can be read as a pipeline from producer prices to consumer inflation. Markets are watching whether producer-level cost pressures continue to fade or begin to re-emerge.

What markets look for:

Core PPI, particularly services-linked components, provides an early indication of cost momentum. Core CPI breadth may help determine whether inflation is continuing to cool or showing signs of persistence.

A softer pipeline would reinforce confidence that disinflation can extend into early 2026, increasing the scope for a potential March policy adjustment. Stickier CPI readings above 3% would raise questions about the durability of recent progress.

How rates and the USD often react

Market reaction tends to be led by yields. Cooling inflation pressure usually pulls short-dated yields lower and softens the USD, while persistent inflation risks can push yields higher and tighten financial conditions.

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Policy: January FOMC meeting

By the time the Federal Reserve meets at the end of January, markets will have processed the early growth, labour, and inflation signals of the year.

Key Dates:

• FOMC rate decision: 29 January, 2:00 PM (ET)/ 30 January, 6:00 AM (AEDT)

What markets look for:

A policy change is unlikely this month, but how those signals are framed in the statement and press conference still matters. With January cut expectations priced well below 20%, attention is on whether expectations for a March move, currently around 50%, begin to shift.

Confidence that inflation and labour pressures are easing would typically support lower yields and a softer USD. A more cautious tone could lift yields, strengthen the USD, and tighten global financial conditions.

Putting it all together

January’s data acts as condition-setters rather than decision points. The practical takeaway lies in how markets respond as those conditions become clearer:

If growth and labour soften while inflation continues to ease, markets may lean toward a more constructive risk backdrop, with Treasury yields remaining the key guide and expectations for policy easing later in Q1 firming.

If growth holds up and inflation proves sticky, a more cautious posture may be warranted, with heightened sensitivity to Treasury yields, USD strength, and pressure on equity valuations and rate-sensitive commodities.