Market sentiment stays weak early Monday as fears of a U.S.-Iran war combine with mixed Purchasing Managers’ Index (PMI) data from major economies and fresh concerns over the Federal Reserve’s independence after U.S. President Donald Trump nominated Kevin Warsh as Federal Reserve Chair. A firmer U.S. Dollar (USD), a much-needed pullback in gold and silver prices, and renewed worries about a U.S. government shutdown further weighed on the mood.
Federal Reserve officials offered mixed signals, with St. Louis Fed President Alberto Musalem saying further interest rate cuts are not advisable, Fed Governor Christopher Waller noting he dissented in favor of a rate cut because policy remains too restrictive, and Atlanta Fed President Raphael Bostic stressing he wants clear evidence of inflation returning to the 2% target.
Friday marked an extraordinary session for precious metals, as gold plunged 10% and silver collapsed 30%, the worst percentage drop ever for silver.
Some credit was given to Warsh’s nomination, though the move looked more like a volatility-driven stampede, reinforced by a sharp fall in Microsoft (MSFT) shares that suggested no asset was safe.
Markets currently view Warsh as quietly hawkish despite his public comments, though uncertainty remains given decisions are data-driven and made by committee.
Producer Price Index (PPI) data came in hot, oil prices rose again, and geopolitical focus stayed on Iran, with talk of potential U.S. strikes. Trump briefly cooled tensions by saying Iran wants to negotiate, but crude oil later recovered its losses.
In China, President Xi Jinping renewed calls to strengthen the yuan, formally known as the renminbi, as a global reserve currency, highlighting Beijing’s aim to reduce reliance on the U.S. dollar while expanding China’s financial influence. Economic data added pressure, with the official January manufacturing PMI falling to 49.3 from 50.1 and the non-manufacturing PMI dropping to 49.4, signaling contraction and a soft start to 2026. Private data were slightly better, as the RatingDog China General Manufacturing PMI rose to 50.3, but gains remained fragile amid rising cost pressures.
Germany’s preliminary January Consumer Price Index (CPI) rose 2.1% year-on-year, slightly above expectations of 2.0%.
In Japan, currency policy became politically sensitive ahead of the February 8 snap election after Prime Minister Sanae Takaichi initially praised a weaker yen before softening her stance. Markets remain alert to intervention risks and possible fiscal easing. The Bank of Japan (BOJ) Summary of Opinions from its January meeting highlighted a moderate economic recovery and persistent inflation, supporting a cautious approach to further tightening. Japan’s manufacturing PMI showed improvement, with the S&P Global Japan Manufacturing PMI rising to 51.5 in January from 50.0, the strongest reading since August 2022.
Australia’s manufacturing PMI hit a five-month high in January, signaling faster growth. Inflation signals stayed firm, with the Melbourne Institute Inflation Gauge rising to 3.6% year-on-year, keeping the Reserve Bank of Australia (RBA) hike risk alive. Job advertisements jumped 4.4% in January, reinforcing the case for tighter policy.
The Canadian dollar largely shrugged off fresh tariff threats, outperforming most currencies despite a weaker showing against the USD. USD/CAD rose to around 1.3594, while Canada’s November Gross Domestic Product (GDP) printed flat at 0.0% versus expectations of 0.1%.
Oil prices opened lower as OPEC+ kept March output unchanged and the Iran risk premium wavered. President Trump warned of consequences if Iran does not reach a nuclear deal, while Iran’s Supreme Leader Ayatollah Ali Khamenei cautioned that a U.S. attack could spark regional war.
In India, equity markets slumped in a special Sunday session after the government proposed a higher securities transaction tax (STT) on equity derivatives, raising trading costs. Fitch Ratings viewed the budget as growth-neutral, noting continued commitment to macroeconomic stability despite slower fiscal consolidation.
Bitcoin’s dip to around $75,200 pushed Strategy’s average purchase price marginally underwater, though analysts see limited balance-sheet risk.
Amid these plays, the U.S. Dollar Index (DXY) struggles to carry the late-week rebound, while the Gold and silver bears take a breather after a stellar fall. Meanwhile, major currencies also lick their wounds following a weekly loss, except USDJPY, which lacks clear direction after a two-week downtrend. Further, AUDUSD, NZDUSD, and USDCAD begin the week on a negative note versus the USD after a positive week, while crude oil begins the week with a gap down amid mixed concerns on Iran and OPEC+ news. Further, cryptocurrencies remain under pressure, and the Asia-Pacific equities drift lower after a downbeat Wall Street close.
EURUSD posts modest gains, trimming its biggest daily loss in six months as the U.S. Dollar struggles to extend earlier gains. The euro also finds support from the European Union–India trade deal, stronger German inflation data, and a dovish Federal Reserve bias, in contrast to the neutral tone from recent European Central Bank (ECB) officials’ speeches.
Elsewhere, GBPUSD stays under pressure as strains in U.S.–UK relations linked to UK–China trade negotiations combine with mixed UK economic data and cautious remarks from Bank of England (BoE) Governor Andrew Bailey.
USDJPY struggles to hold the previous day’s strong gains as upbeat Japan Purchasing Managers’ Index (PMI) data, a mostly hawkish Bank of Japan (BoJ) bias, and a softening of comments from Japan's Prime Minister on possible market intervention to defend the Japanese yen (JPY) ahead of the February 08 snap election weigh on the pair. At the same time, tension between the yen’s traditional safe-haven role, the BoJ’s hawkish tilt, and the currency’s recent slump keeps traders cautious as a key week begins with U.S. Non-Farm Payrolls (NFP) in focus.
AUDUSD and NZDUSD extend Friday’s decline, putting last week’s gains under pressure. At the same time, USDCAD stays firm for a second consecutive day, building on its rebound from a multi-month low as softer crude oil prices, Canada’s key export, weigh on the Canadian dollar. Added pressure comes from challenges linked to Canada’s strong business ties with the UK, the European Union (EU), and China, relationships the U.S. views unfavorably. Meanwhile, U.S. President Donald Trump has warned Canada of heavy tariffs, though no concrete action has been taken so far.
Gold and silver extend the late-week reversal from their respective all-time highs as a firmer USD combines with month-end market consolidation. Mixed concerns around the Federal Reserve and talk that bullion prices have become too elevated also encourage some investors to cash out ahead of this week’s top-tier data/events.
WTI crude oil starts the week with a downside gap as OPEC+ keeps its output policy unchanged, as expected, while signaling a further gradual increase in supply. The lack of actual U.S. military action against Iran despite repeated threats, along with U.S. President Donald Trump’s latest step back, also contributes to the pullback in black gold prices.
Cryptocurrencies trade lower, with Bitcoin (BTC) hitting a 10-month low and Ethereum (ETH) sliding to a seven-month low, as momentum stays weak. Digital assets remain in a downtrend as traders shy away from risk assets and instead move toward gold, silver, and copper amid geopolitical uncertainty, Federal Reserve concerns, and ongoing trade tensions.
Elsewhere, Asia-Pacific equities drift lower, tracking Friday’s downbeat Wall Street close and largely ignoring a mild rebound in Indian stocks after a weak showing in Sunday’s budget-related special trading session. Shares in China, Australia, and Japan also decline amid geopolitical worries, expectations of higher interest rates, and a cautious mood ahead of a key data-packed week.
Monday’s economic calendar includes PMI numbers from Germany, the Eurozone, Canada, and the U.S., alongside German Retail Sales and Federal Reserve (Fed) talks. Market attention will focus on updates about a potential U.S. government shutdown and U.S. President Donald Trump’s trade tariff news. Key events for the week include the Reserve Bank of Australia (RBA), Bank of England (BoE), European Central Bank (ECB) meetings, and U.S. Non-Farm Payrolls (NFP).
The recent U.S. Dollar (USD) rally appears fragile and could falter if incoming data disappoints or if Trump enacts market-moving policies favoring a softer dollar. This could support a rebound in gold and silver and help equities recover some of last week’s losses. Cryptocurrencies are less likely to rebound, while major currencies and Antipodeans may struggle for clear direction, remaining sensitive to risk-related news. USD/JPY may see a pullback and end the day lower due to hawkish Bank of Japan (BoJ) signals, political tensions ahead of Japan’s February 08 snap election, and the government’s reversal on market intervention to defend the Japanese yen (JPY).
May the trading luck be with you!
