Photo by Jakub Żerdzicki on Unsplash
 

The markets are reacting dramatically to recent developments. Stocks and bonds have been sold, gold and silver are at record highs, and the US dollar has been sold aggressively. President Trump is in Davos and has not relented on his demand for Greenland and he seeks to cajole others into joining the board to oversee the reconstruction of Gaza. US Treasury Secretary Bessent, who has actively defended the effort to acquire Greenland, even though on two different occasions at least the US has recognized Danish authority, and warns the market is overreacting like it did around ‘Liberation Day” last April. 

Even though the former LDP coalition partner merged with Japan’s largest opposition party, Prime Minister Takaichi has outflanked it and will most likely stay on in her role after the February 8 election. Her fiscal plans saw a dramatic jump in Japanese long-term rates (25-30 bp). The yen is the weakest of the G10 currencies, and it is up about 0.25% against the dollar. The Swiss franc is leading the move, and it is up over 1%. 
 

Prices  

G10

• The euro posted a bullish outside up day yesterday, trading on both sides of last Friday’s range and settling above its high. Follow-through buying today has lifted it to nearly $1.1740. The move through $1.1720 fulfills a retracement objective of the losses since Christmas eve. Note that the options for 2.2 bln euros at $1.17 were set to expire Thursday. The next technical target is near $1.1755. 

• The dollar closed on session highs yesterday near JPY158.10 and initially rose to JPY158.60 in the local session before coming off. Options for $800 mln, struck at JPY158 expire today. The dollar fell to about JPY157.55 in Europe, despite the jump in US 10-year yields. Contrary to some speculation, Japanese officials did not intervene yesterday, while the US markets were closed. The election call for next month was not surprising but seemed to provide support for the greenback near JPY157.40. The 20-day moving average is near JPY157.20. The dollar has not closed below it since late December. 

• Sterling broke down to almost $1.3330 yesterday before recovering to poke above $1.3420. It settled above the pre-weekend high (~$1.3413) to post a technically bullish outside up day. It continued to rise today and reached $1.3490 before consolidating in early European dealings. Some buying may have been option-related with nearly GBP335 mln at $1.3420 and GBP326 mln at $1.3485. Initial support is seen in the $1.3450-60 area. 

• Although Canada’s headline inflation was slightly firmer than expected (due to the federal tax holiday at the end of 2024), the average of the median and trimmed core rate slipped to 2.6% from 2.8%. The Canadian dollar extended its gains to its best level in three sessions. The greenback was sold to CAD1.3860 yesterday after approaching CAD1.3930 before the weekend. Its losses were extended through last week’s low (~CAD1.3855) to almost CAD1.3815 today. Nearby support is seen in the CAD1.3790-CAD1.3800.

• The Australian dollar closed firmly yesterday above $0.6710 and reached nearly $0.6750 today before consolidating. The high recorded earlier this month was a little above $0.6765. 

EM

• The Mexican peso rose for its sixth consecutive session yesterday. The dollar briefly traded below MXN17.60 for the first time since June 2024. The dollar’s low was slightly below MXN1757. We have been anticipating a test on MXN17.60 for some time. Our next target is around MXN17.38. The risk-off mood has seen the peso pullback. The US dollar has recovered to trade above MXN17.64. 

• The Chinese yuan continues to quietly march higher. Against the offshore yuan, the dollar eased to slightly below CNH6.9500 today, its lowest level since May 2023. The PBOC set the dollar’s reference rate at CNY7.0006 (CNY7.0051 yesterday and CNY7.0103 a week ago). Year-to-date the onshore yuan has appreciated by 0.40%, putting it in second place among Asian currencies. Most of the region’s other currencies, including those of South Korea, Taiwan, and India have all depreciated. 

• The dollar crept higher against the Indian rupee. It reached INR91.0650, sightly shy of last month’s record ~(INR91.0835). The Reserve Bank of India is believed to have intervened. 
 

Other Markets 

• Equities are under pressure. Nearly all the large bourses in the Asia Pacific region fell, with the exception of Taiwan. Europe’s Stoxx 600 is off around 1.25%, for what will likely be its third consecutive losing sessions for its long downdraft of the new year. US index futures are off 1.5%-2.0%. 

• Benchmark 10-year yields have jumped today, beginning with the nine-basis point rise in Japan. Japan’s longer maturities rose even more. The 30-year JGB yield surged nearly 27 bp to 3.88% and the 40-year yield popped almost 30 bp to 4.23%.European benchmark yields are mostly 4-7 bp higher, and the 10-year Treasury yield is up seven basis points to nearly 4.29%, the highest since last September. 

• Gold has been bid to a new record near $4737.55. Silver is also reached a record slightly above $95.50. 

• March WTI recovered from a five-day low near $58.50 and is around $1 higher in European turnover. Yesterday’s high was a little over $60. 
 

Data

• The US sees the ADP weekly employment estimate for late December, and it will be compared with the previous reading of 11.75k. Philadelphia Fed’s non-manufacturing January survey is also on tap. The December reading was revised to -21.6 from -16.8. Recall that the Philadelphia Fed’s survey of the business outlook reported last week rose to 12.6 from a revised -8.8 (-10.2 initially). That was the strongest since September. In GDP terms, it does look like the US economy finished last year on a firm note. 

• The aggregate eurozone November current account surplus fell to 8.6 bln euros from 26.7 bln euros in October. It averaged about 34.6 bln euros in the first 11 months of 2024 and about 21.8 bln euros in the Jan-Nov 2025 period. Still, it looks to be slightly more than 2% of GDP (2.7% in 2024). Separately, EMU’s construction output plummeted by 1.1% in November after a 1.7% jump in October. The fourth quarter could be the only quarter in 2025 that saw an increase in eurozone construction—apparently helped by the infrastructure plans. Lastly, Germany’s ZEW survey showed that the assessment of the current situation and expectations improved. The current assessment stands at -72.7 from -81.0 in December. The expectations component rose to 59.6 from 45.8. 

• The UK’s average weekly earnings were firm in November, while the labor market seemed to improve on the margin. Employment rose by 62.k (three months over three months) after a 16k decline in October. It is the first increase in three months, though payrolled employees declined by 43k (-33k in November). Jobless claims rose by 17.9k after falling a revised 3.3k in November (initially +20.1k). The ILO measure of unemployment (three months) was unchanged at 5.1% in November. Tomorrow sees December CPI, which looks to have firmed into the end of the year. 

• As widely anticipated, China’s one- and five-year loan prime rates were held steady at 3.0% and 3.5%, respectively. 

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