USD Retreats as Markets Focus on Political Risk, Not Policy Talk

Key Highlight

• Ongoing domestic challenges and global geopolitical tensions continue weigh on outlooks

Market Recap

The US dollar saw a strong bounce, recording its largest intraday move in several months after US Treasury Secretary Bessent confirmed the US was not intervening in the Japanese yen. This prompted a sharp rise in USD/JPY of around 1%. However, the broader outlook for the dollar remains cautious, with ongoing shutdown risks and weak sentiment towards US assets limiting confidence in a sustained recovery.

Elsewhere, the Canadian dollar proved resilient after the Bank of Canada left interest rates unchanged and reinforced a careful, data-dependent approach, which helped support CAD stability.

In Europe, comments from ECB officials suggested growing unease around the recent strength of the euro, signalling potential discomfort if gains continue.

Meanwhile, the Australian dollar stayed underpinned as stubbornly high core inflation reinforced expectations that the RBA may need to deliver further rate hikes in 2026.

What this means:

Volatility in the USD remains headline-driven rather than trend-driven, while central bank signals continue to play a key role in shaping currency performance across major markets.

Market Overview:

The US dollar is softer this morning as political uncertainty in Washington and escalating tensions between the US and Iran have weighed on overall risk appetite. Investors have shifted towards traditional safe havens, including gold and silver. While comments from Treasury Secretary Scott Bessent helped limit further USD losses, the broader tone remains negative, with political and geopolitical risks continuing to pressure the currency.

In Europe, German Chancellor Friedrich Merz highlighted concerns that euro strength against the dollar is squeezing exporter margins and undermining competitiveness. As a result, GBPEUR is trading higher as sterling benefits from the relative move in EUR.

What to watch today

Today’s economic calendar is active but unlikely to deliver major shocks. In the eurozone, January consumer confidence is expected to stay deeply negative, reinforcing the view that weak domestic demand supports the ECB’s ongoing easing stance.

In the US, weekly jobless claims are forecast to edge up slightly but remain at historically low levels, keeping the soft-landing narrative intact. Attention will also turn to trade balance and factory orders data. A wider trade gap would highlight continued external pressures, while any improvement in factory orders would suggest US manufacturing is beginning to stabilise.

In Japan, Tokyo inflation is expected to ease modestly, which could reduce near-term pressure on the Bank of Japan. However, recent movements in the yen have been driven more by intervention speculation than data, meaning market reaction may be limited.

What this means:

Markets remain highly sensitive to political risk, keeping the USD under pressure, while upcoming data is more likely to confirm existing trends than change the broader outlook.

29th January 2026

How We Can Help...

Our team are here to help you get more from your money when making international payments. We will work with you to understand your payment needs and offer guidance on the best options available to you.

Get in Touch!

P: 07441 910 897

E: FX-Admin@frank-exchange.com

This document has been prepared solely for information and is not intended as an Inducement concerning the purchase or sale of any financial instrument. By its nature market analysis represents the personal view of the author and no warranty can be, or is, offered as to the accuracy of any such analysis, or that predictions provided in any such analysis will prove to be correct. Should you rely on any analysis, information, or report provided as part of the Service it does so entirely at its own risk, and Frank eXchange Limited accepts no responsibility or liability for any loss or damage you may suffer as a result.  Information and opinions have been obtained from sources believed to be reliable, but no representation is made as to their accuracy. No copy of this document can be taken without prior written permission.