Market risk stayed fragile early Monday due to mixed geopolitical developments from Japan, the U.S., and China. Traders remained cautious ahead of this week’s Federal Open Market Committee (FOMC) meeting, a pending U.S. Supreme Court ruling, and ongoing peace talks in Ukraine. Last week’s U.S. economic data was mostly mixed, weakening the earlier hawkish stance around the Federal Reserve (Fed). The mixed U.S. data reinforced expectations that the FOMC may keep policy unchanged on Wednesday and put pressure on the U.S. Dollar.
Ongoing geopolitical and trade uncertainty, along with a more dovish Fed bias, supported safe-haven assets. Gold, silver, and the Japanese Yen (JPY) strengthened, with the Yen gaining additional support from talk that Japan may intervene to defend the previously weaker currency.
The week began dramatically as USDJPY dropped nearly 200 pips, breaking below 154.00 after trading above 159 on Friday. The sharp reversal followed reports and rumors of a Japanese rate check. It was reinforced over the weekend by verbal intervention signals from Japan's Prime Minister (PM) Sanae Takaichi ahead of the February 8 election.
The U.S. Dollar also weakened as the risk of a U.S. government shutdown increased after a violent weekend in Minnesota. Rising global instability and domestic unrest in Minneapolis added to concerns that tensions in the U.S. may not ease soon.
In Ukraine, peace talks continue, but optimism fades without tangible progress. Iranian protests appear to have eased following a harsh government response, though discussion of U.S. intervention persists. At the same time, there is increasing talk of U.S. activity related to Cuba and even Mexico.
Adding to unease, Chinese President Xi Jinping launched a major military purge over the weekend, removing top officials, including the most senior uniformed military leader and a Politburo member. According to reports, General Zhang Youxia was accused of leaking nuclear weapons information to the U.S. and accepting bribes.
Reports also emerged that the Trump administration is considering a full blockade of Cuba. The U.S. has already built a significant military presence in the Caribbean, initially aimed at Venezuela, and this force may now be redirected. Senator Marco Rubio is reportedly leading the push. A blockade would be a major escalation and effectively an act of war, likely triggering an international incident. Cuba’s economy is already under severe strain and has lost support from Venezuela. The U.S. previously restricted Venezuelan oil shipments to Cuba, and a separate Reuters report says Mexico is considering halting oil exports to Cuba as well.
U.S. January S&P Global flash services Purchasing Managers’ Index (PMI) came in at 52.5, versus 52.8 expected and 51.8 previously. While there is optimism about the U.S. economy early in the year, this is not fully reflected in survey data, which is often a leading indicator. Businesses continue to face pressure from tariffs, uncertainty, and the uneven effects of a K-shaped economy.
On Friday, North American trading saw large moves in commodities and foreign exchange (FX) despite a lack of clear catalysts. The main focus was speculation that Japan’s Ministry of Finance conducted a rate check, a symbolic step that often precedes currency intervention. USDJPY had climbed to 159.22 after the Bank of Japan decision, but later reversed sharply to 155.86.
Late in the session, renewed talk of a Cuban blockade and possible action against Iran added to the tension.
U.S. stock markets showed mixed performance, with megacap technology stocks holding up while the Russell 2000 lagged. The S&P 500 ended flat, while Intel, the year-to-date leader, fell 17% after weak guidance.
Australia was closed for Australia Day, but that did not stop AUDUSD from reaching a fresh 15-month high. U.S. equity futures opened sharply lower but recovered part of the losses and now trade down around 0.3%.
Canada reported November retail sales at +1.3% versus +1.2% expected, improving from -0.2 % previously. The Canadian Dollar remained flat but underperformed slightly as Trump threatened 100% tariffs on Canada if it made a deal with China. Treasury Secretary Scott Bessent later clarified that such tariffs would only apply if Canada signed a free trade agreement with China, which is not allowed under the United States-Mexico-Canada Agreement (USMCA).
Against this backdrop, the U.S. Dollar Index (DXY) fell to its lowest level since September 2025, allowing gold and silver to extend record highs beyond $5000 and $100, respectively. EURUSD and GBPUSD edged higher, USDJPY dropped to a 2.5-month low, AUDUSD reached a 15-month high despite the Aussie holiday, and NZDUSD climbed toward its September 18 peak. USDCAD fell to a one-month low during a six-day decline. Crude oil struggled to hold Friday’s gains, cryptocurrencies saw a corrective bounce, and Asia-Pacific equity markets traded mixed following an unclear finish on Wall Street.
Slightly positive European Union (EU) and United Kingdom (UK) Purchasing Managers’ Index (PMI) data for January, along with a broadly weaker U.S. Dollar, pushed EURUSD and GBPUSD to their highest levels since September. Further support came from market consolidation ahead of Wednesday’s Federal Open Market Committee (FOMC) meeting. However, early Monday, caution weighed on buyers after the pairs reached multi-month highs.
Japan policymakers’ readiness to defend the Japanese Yen (JPY), together with the recent rate check and the Prime Minister’s (PM) willingness to provide further stimulus despite a weaker JPY, dragged USDJPY to its lowest level since mid-November. The Yen’s traditional safe-haven status added further pressure on the pair ahead of this week’s Federal Open Market Committee (FOMC) meeting. Meanwhile, softer readings of Japan’s Coincident Index and Leading Economic Index for November failed to deter USDJPY sellers.
AUDUSD climbed to its highest level since October 2024, and NZDUSD reached an 18-week high as a softer USD combined with China’s readiness for additional stimulus. At the same time, USDCAD extended its six-day losing streak to a one-month low, supported by slightly higher prices of Canada’s key export, crude oil, upbeat Canada retail sales, and improving trade ties with China, Europe, and the UK. Notably, Trump’s threat of 100% tariffs on Canada if it signs a free trade agreement with China failed to discourage USDCAD sellers.
Gold and silver prices extended their earlier rallies to fresh record highs above the $5000 and $100 psychological levels, as a softer USD combined with global economic and geopolitical uncertainty. Strong institutional demand for bullion also supported the rise in XAUUSD and XAGUSD.
Concerns over global oil supply disruptions, along with a softer USD, offset the OPEC+ supply increase and tested crude oil buyers early Monday after a five-week uptrend. At the same time, cryptocurrencies stabilized after a two-day losing streak and heavy weekly losses. Asia-Pacific equities edged lower with limited downside momentum, tracking Friday’s mixed performance on Wall Street.
Looking ahead, Germany’s IFO Sentiment data for January will come first, followed by U.S. Durable Goods Orders and activity data from the Chicago Federal Reserve (Chicago Fed) and Dallas Federal Reserve (Dallas Fed), shaping Monday’s economic calendar. However, the main focus will be on Trump’s comments regarding Cuba, Iran, and Greenland, as well as the ongoing tariff tensions with Canada and India.
With the U.S. Dollar Index (DXY) near a four-month low, further weakness could drag it toward its September low, supporting continued gains in gold, silver, and the Japanese Yen (JPY). In contrast, crude oil may struggle to extend its recent rally, while cryptocurrencies could attempt a corrective rebound. Above all, traders’ positioning ahead of Wednesday’s Federal Reserve (Fed) decision will be crucial for a clearer market direction, keeping demand for bullion strong amid persistent uncertainty.
May the trading luck be with you!
