US Dollar Slides as US–Japan FX Intervention Speculation Grows

Key Highlight

• Broad-based selling pressure on USD ahead of Fed meeting

Market Recap

Sterling strengthened sharply, rising more than 0.5% against both the US dollar and the euro. Gains were driven by firmer UK activity data and a more hawkish tone from the Bank of England, which prompted markets to scale back expectations for near-term rate cuts. Comments from BoE policymaker Megan Greene reinforced concerns that falling US rates could add to inflation pressures in the UK.

UK PMI figures surprised to the upside, with Composite at 53.9 and Services 54, signalling fastest business expansion in almost 2 years, improving momentum across the economy.

Elsewhere, eurozone data pointed to modest but steady growth at 51.5, while US PMI readings also indicated continued expansion across manufacturing and services. Composite 52.8, Manufacturing 51.9, Services ~52.5.

The US dollar remained under pressure, posting its biggest weekly drop since June, with the USD index down 0.9%. Investors have been reducing dollar exposure ahead of next week’s Federal Reserve meeting, amid growing uncertainty around the policy outlook and concerns over political influence on future Fed leadership.

Market Overview:

The US dollar weakened across the board, with US index hitting its lowest level since September, as speculation mounted that the US could coordinate with Japan to support the yen. Comments from Japanese officials, alongside a New York Fed rate operation, fuelled talk of joint FX action and triggered a sharp move lower in USD/JPY.

Risk appetite also softened. Precious metals surged, with gold breaking above $5,000 for the first time and silver reaching fresh record highs, while US equity futures edged lower. Sentiment has been dented by renewed tariff threats, US shutdown concerns and ongoing geopolitical tensions.

Markets are now firmly focused on a busy central bank week. The Federal Reserve is expected to leave rates unchanged, but Chair Powell’s messaging will be closely watched for signals on the medium-term policy path. Any headlines around Donald Trump’s preferred candidate for the next Fed Chair could also influence market direction.

Elsewhere, the Bank of Canada is widely expected to keep rates on hold at 2.25%.

On the data calendar, the US will release jobless claims, PPI, consumer confidence and core capital goods orders. In Australia, upcoming CPI data is expected to reinforce expectations of an RBA rate hike in February. In Europe, GDP, inflation and sentiment indicators are unlikely to materially alter ECB expectations, although modest improvements in German Ifo and wider eurozone confidence are anticipated.

26th January 2026

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