Risk appetite was uncertain early Tuesday as rising geopolitical tensions mixed with concerns over Japan’s possible foreign exchange intervention and caution ahead of today’s U.S. inflation data. Markets focused on U.S. President Donald Trump’s tariff threat against countries trading with Iran, hawkish comments from Federal Reserve (Fed) officials, and growing talk that Japan may step in to support the weakening Japanese Yen (JPY).
The global rating agency Fitch Ratings said Federal Reserve independence remains a key pillar supporting the US AA+ sovereign rating. Fitch warned it is closely monitoring governance and institutional checks amid renewed political pressure on Federal Reserve Chair Jerome Powell.
Policy uncertainty intensified after President Trump announced an immediate 25% tariff on any country doing business with Iran, without providing implementation details. This left markets guessing about the impact on global trade, especially regarding China, one of Iran’s largest trading partners. Market chatter suggests the policy could soften or reverse, particularly in China’s case.
The U.S. also increased efforts to secure critical mineral supplies. U.S. Treasury Secretary Scott Bessent hosted a high-level finance ministerial in Washington to strengthen and diversify supply chains for key resources such as rare earth elements. Officials from Australia, Canada, the European Union (EU), France, Germany, India, Italy, Japan, Mexico, South Korea, and the United Kingdom attended, along with senior U.S. officials and representatives from the private sector, reflecting concerns over supply chain concentration risks.
According to Axios, Treasury Secretary Scott Bessent privately warned President Trump that the federal investigation into Fed Chair Jerome Powell had created instability and could unsettle financial markets. While Bessent did not oppose the investigation itself, he cautioned that its timing and political optics threatened market confidence in Federal Reserve independence.
Federal Reserve messaging remained consistent. New York Fed President John Williams stated that monetary policy is near neutral and well-positioned, with inflation expected to return to 2% by 2027. He signaled no urgency for further rate cuts, defended Fed independence, upheld the current rate framework, and reiterated that the U.S. Dollar remains the world’s reserve currency.
FX markets were led by renewed weakness in the Japanese Yen. Japan Finance Minister Satsuki Katayama said she raised concerns over one-sided yen moves with U.S. Treasury Secretary Scott Bessent, briefly supporting the currency.
On the same line, Japan’s government spokesperson echoed this, warning about sharp and speculative FX moves and stating that authorities stand ready to take appropriate action if volatility becomes excessive. Despite stronger rhetoric from multiple officials, markets viewed the comments as verbal intervention, with limited immediate impact on pricing.
In the UK, demand indicators weakened further. Barclays card data showed consumer spending fell 1.7% year on year (y/y) in December, the sharpest drop since February 2021 during the COVID pandemic, worsening from November’s 1.1% decline. Spending on essential items fell for the eighth straight month, highlighting ongoing pressure on household budgets. British Retail Consortium (BRC) data also showed softer trends, with total retail sales rising just 1.2% y/y, the weakest growth since May, while like-for-like sales rose only 1.0% as shoppers delayed purchases for post-Christmas discounts.
In Australia, consumer confidence slipped deeper into pessimistic territory. The Westpac–Melbourne Institute Consumer Sentiment Index fell 1.7% to 92.9 in January from 94.5 previously, following a sharp 9% drop in December. Although well above the lows of the 2022–2024 cost-of-living crisis, readings below 100 show pessimists still outnumber optimists as interest-rate expectations move higher.
In New Zealand, sentiment improved sharply. The New Zealand Institute of Economic Research (NZIER) Quarterly Survey of Business Opinion (QSBO) showed business confidence at its highest level since 2014, with stronger hiring and investment intentions, stabilizing activity, and contained inflation pressures. This supported expectations that the Reserve Bank of New Zealand (RBNZ) has finished cutting rates this cycle, helping NZD/USD edge higher.
Oil prices rose as geopolitical risks linked to Iran outweighed expectations of increased supply from Venezuela. Prices climbed to their highest levels in around seven weeks, extending gains that began mid-last week as markets balanced rising tensions against the prospect of sanctioned barrels returning.
Amid these developments, the U.S. Dollar Index (DXY) stayed range-bound after reversing from a one-month high. Gold paused after hitting a fresh all-time high (ATH), while Silver remained mildly supported near record levels. USDJPY rose to a fresh one-year high, while EURUSD faded from Monday’s rebound from a one-month low. GBPUSD moved sideways after ending a four-day losing streak. AUDUSD gave back earlier gains following weak Australian data, while NZDUSD edged higher on strong New Zealand data. USDCAD stayed under pressure despite oil struggling to hold gains. Cryptocurrencies posted mild advances, and Asia-Pacific equities edged higher following Wall Street’s positive lead.
Improved Eurozone Sentix Investor Sentiment for January, along with the U.S. Dollar’s pullback from a one-month high, helped EURUSD rise the previous day. This allowed the pair to break a four-day losing streak and rebound from a one-month low. However, a cautious market mood early Tuesday is limiting the Euro pair’s upward momentum.
At the same time, GBPUSD, also known as Cable, looked past mixed UK consumer spending data and extended its early-week rebound from the 200-day Simple Moving Average (200-day SMA). This move also helped the pair snap a four-day losing streak. Still, the U.S. Dollar’s inability to deepen its previous day’s losses is capping further gains in the pair.
USDJPY (U.S. Dollar/Japanese Yen) extends its six-day winning streak, trading at the highest level since early January 2025, as markets stay alert to possible intervention by Japan to support the weaker Yen (JPY). Even so, Japan’s Finance Minister and other government officials signaled readiness to act, while traders continued selling the Yen on expectations of additional stimulus and a clear technical breakout.
Adding to the move, Japan Prime Minister (PM) Takaichi’s openness to a snap election to strengthen governance, alongside her preference for stronger fiscal stimulus, has played a key role in lifting the USDJPY pair. Recent doubts over Bank of Japan (BoJ) interest rate hikes, combined with a shift in focus away from earlier dovish concerns at the Federal Reserve (Fed), have further pressured the Yen. This comes as markets remain cautious ahead of today’s key U.S. inflation release, the Consumer Price Index (CPI).
Weak Australian Consumer Confidence, combined with a cautious market mood, is weighing on AUDUSD and challenging Monday’s recovery. In contrast, NZDUSD edges higher, supported by upbeat New Zealand (NZ) sentiment data and a softer U.S. Dollar.
Meanwhile, USDCAD stays under pressure, extending the previous day’s pullback from a five-week high. This comes even as crude oil, Canada’s key export, struggles to hold on to its recent gains.
Gold and WTI crude oil both end their three-day winning streaks with mild losses, with Gold easing after hitting a fresh record high. In contrast, Silver remains firm for the third straight day after setting a new record peak, supported by market uncertainty, a recent technical breakout, steady institutional demand, and a strong year-to-date performance.
Bitcoin (BTC) rises for a third straight day, while Ethereum (ETH) rebounds from the previous session’s losses amid a mixed market tone and an unclear U.S. Dollar trend.
U.S. equity markets largely ignored fresh political headlines on Monday, January 12, and closed at record highs. The S&P 500 and the Dow Jones Industrial Average (Dow) both hit new peaks, even as FX traders pressured the dollar and moved toward safe havens.
Technology and consumer staples led gains, with Walmart up about 3% ahead of its January 20 inclusion in the Nasdaq-100. Financial stocks lagged after President Donald Trump proposed a one-year 10% cap on credit-card interest rates, raising concerns over regulation and profitability.
Google reached a $4 trillion market value after CNBC reported a multi-year partnership with Apple to power artificial intelligence (AI) features such as Siri using Google’s Gemini. Apple said the technology offers the strongest base for Apple Foundation Models.
The U.S. fourth-quarter earnings season begins this week with JPMorgan and Bank of New York Mellon on Tuesday, followed by Bank of America, Wells Fargo, and Citigroup on Wednesday, and later reports from Morgan Stanley, Goldman Sachs, and BlackRock. Results will show how firms managed late-2025 disruptions, while sentiment toward financials remains cautious due to regulatory concerns.
U.S. ADP Employment Change 4-Week Average (ADP), Consumer Price Index (CPI), and Housing data will be key drivers for clear market direction on Tuesday. Headlines linked to President Donald Trump, Venezuela, Russia, and Greenland will also remain important.
The US Dollar (USD), also called the Greenback, is pulling back amid Federal Open Market Committee (FOMC) concerns. This could attract USD sellers and support major currencies, along with Gold, Silver, and Equities. However, Cryptocurrencies may see limited upside as ongoing geopolitical risks keep investors tilted toward risk safety.
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