Little respite for the dollar yet
The dollar remains under pressure having fallen sharply late Friday amid speculation of imminent joint US-Japan intervention to support the yen. The US currency very briefly traded down to lows of just over $1.19 versus the euro and north of $1.37 versus sterling during the course of yesterday’s session, and is only marginally firmer this morning at around $1.1860 and $1.3670 respectively. EURGBP is little changed at £0.8675. The threat of intervention has obviously lifted the yen, which at just under Y155 vis-a-vis the dollar remains well off last week’s low of almost Y160 – which looks to be the ‘line in the sand’ for the Japanese authorities – albeit off yesterday’s high of almost Y153.
While the dollar was under pressure, US equity markets had a solid enough session. The main indices all advanced, rising by between 0.4% and 0.6%. European stocks underperformed slightly, chalking up gains of about 0.2%. Japanese stocks have rebounded overnight, with the Nikkei gaining almost 1%. Indeed Asian markets generally are in the black notwithstanding Trump’s latest tariff tantrum, this time announcing an increase in tariffs on South Korea to 25% (from 15%) because of the latter’s failure to implement the recently agreed trade deal with the US quickly enough.
Government bond yields in the main markets edged down yesterday. Euro area yields fell by around 4-6bps, reversing some of last week’s sizeable enough increase, while US and UK yields were a couple of basis points lower. Japanese yields have moved up overnight, by 4-5bps, having fallen in recent sessions, but remain below the elevated levels reached early last week.
Business confidence in Germany was little changed at the start of 2026 according to the latest ifo Business Climate Index, which remained at 87.6 in January (a bit lower than expected). Businesses assessment of the current situation edged up somewhat, while expectations dipped a little, suggesting “the German economy is starting the new year with little momentum” according to the ifo Institute.
The Fed begins its two-day monetary policy meeting today at which it is widely expected to leave its key interest rate unchanged in a range of 3.50-3.75%. On the economic data front, the main releases due are the Conference Board’s consumer confidence index for January and the ADP weekly employment report in the US.