Market sentiment has improved as trade tensions ease and key US data comes into focus. With tariff rhetoric cooling and crucial inflation figures ahead, FX markets are recalibrating expectations.
Key Highlight
• Formerly aggressive threats from DJT are dialled back
Market Recap
FX markets held a stable tone, as investors reacted to a closely followed speech from Donald Trump that stopped short of introducing new trade or currency threats. Although comments around Greenland resurfaced, the lack of escalation helped soothe market sentiment and supported risk appetite. The response suggests markets are drawing comfort from what wasn’t said, rather than seeing any lasting reduction in geopolitical risk, which remains a background concern.
Sterling showed limited reaction after UK inflation edged slightly higher than expected, with CPI rising to 3.4% year-on-year. The data was not strong enough to materially alter expectations that the Bank of England will continue with a cautious and gradual approach to rate cuts, keeping GBP largely range-bound in the near term.
Market Overview:
Market sentiment has improved at the open, with risk appetite returning after Donald Trump stepped back from tariff threats aimed at European countries resisting his Greenland ambitions. Additional comments pointing to progress on a future framework with NATO further helped ease geopolitical concerns, supporting risk-sensitive assets.
Attention now turns to key US data releases, with Q3 GDP expected to confirm a steady but moderating pace of growth, and only limited revisions anticipated. The main focus, however, is core PCE inflation. As the Federal Reserve’s preferred measure, a weaker reading would strengthen the case for rate cuts later this year and likely pressure the dollar, while a firmer outcome could challenge recent dovish pricing in interest-rate markets.
22nd January 2026
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