Geopolitics has been driving markets, with surprise announcements affecting the forex market. Although there remain many geopolitical hotspots, from Greenland to the latest developments in the Fed investigation, developments in Iran are capturing much of the headlines and driving strong asset moves.

Crude prices had rallied around 11% over the last week, but that move was abruptly cut short by an announcement by US President Donald Trump. The subsequent 4% drop in Brent was the largest since October. Up until Wednesday, markets had been putting a premium on crude as expectations mounted that Trump would order military strikes in Iran. This could disrupt oil shipments through the Strait of Hormuz, which accounts for about a fifth of global supply.
 

Iran Tensions Cool, Greenland Tensions Rise

Late Wednesday, Trump said he was putting military options on pause, saying that he expected Iranian reprisals on protestors to stop. This was followed by signals of strain, including Iran reopening its airspace. However, protests reportedly continued, and the situation remains tense.

In the meantime, geopolitical tensions shifted to Greenland after US Secretary of State Marco Rubio and Vice President JD Vance met with the Foreign Ministers of Greenland and Denmark. Not much was revealed out of the meeting, with both sides saying the talks were “constructive” and would continue. Both also repeated the phrase “agreed to disagree”. What got a lot of attention were comments from Trump after the meeting, where he insisted that Greenland “is very important” for national security. The ongoing tensions are likely contributing to greater caution in the markets, supporting safe-haven assets that have continued to appreciate throughout the week. Gold tracked to a new record high, along with the rest of the precious metals complex.
 

China Surprises with Easing

However, overnight, two distinct events helped restore some risk appetite, particularly for commodity currencies. The first was TSMC reporting continued demand for its AI chips, suggesting the AI trend remains strong. Indicators of risk appetite improved following the data release.

Around the same time, the PBOC made a surprise announcement that it would lower some of its policy-setting interest rates by 25 bps. This did not include its equivalent to an interest rate move in other countries, the RRR rate. However, the easing was seen as a substantial stimulus initiative for the country.
 

Markets Rise, But Caution Remains

The PBOC announcement came after China reported its largest trade surplus on record for 2025, suggesting that tariffs have not substantially hurt global trade. China’s imports of raw materials grew in the same period.

The interest rate cut also included a reduction in the down payment floor for commercial real estate, suggesting the move is intended to help the beleaguered housing market. Housing in China is one of the largest consumers of raw materials, particularly iron ore and copper from Australia. The Aussie dollar strengthened after the move, heading towards weekly highs.

More By This Author:

Intraday Analysis - Friday, Jan. 16
Technical Analysis: EUR/USD - Thursday, Jan. 15
Gold Hits New Record With $4700 In Sight