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January 2026 Market Roundup

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Monthly Market Update: January 2026

Currency Movements

US Dollar (USD)
January proved to be a highly volatile month for the US Dollar, shaped by geopolitical shocks, shifting trade policy rhetoric and speculation around the future leadership of the Federal Reserve. The Dollar began the year strongly, supported by safe-haven flows following US military action in Venezuela and robust US services-sector data. However, this strength was repeatedly tested as President Trump’s surprise tariff threats against Europe and Canada triggered sharp “Sell America” moves, sending the USD lower mid-month.
By the end of January, the Greenback stabilised and partially recovered after a deal was reached to avert a US government shutdown and markets grew more optimistic about Fed independence amid speculation that Kevin Warsh could be appointed as the next Fed Chair.

British Pound (GBP)
Sterling was one of January’s stronger performers, underpinned by resilient domestic fundamentals and a comparatively cautious Bank of England. Strong inflation, retail sales and PMI data forced markets to scale back expectations for near-term rate cuts, allowing GBP to outperform most peers. GBP/USD reached multi-year highs mid-month as the Dollar weakened, while GBP/EUR remained well supported despite periods of consolidation. Overall, Sterling benefited from policy divergence and improving UK economic momentum.

Euro (EUR)
The Euro struggled for much of the month, weighed down by soft German data, concerns over Eurozone growth and recurring energy security risks. While EUR/USD briefly surged during periods of USD weakness—particularly following tariff announcements—the gains proved difficult to sustain. ECB officials increasingly signalled discomfort with Euro strength, hinting that excessive appreciation could weigh on inflation. As a result, the Euro ended the month largely on the defensive despite sporadic rebounds.

Commodity Currencies (AUD & CAD)
The Australian Dollar experienced dramatic swings, emerging as one of January’s standout performers. A sharply higher inflation print and strong labour market data drove AUD/USD to three-year highs, forcing markets to price in a realistic chance of Reserve Bank of Australia tightening.
The Canadian Dollar also showed resilience, supported by rising oil prices and strong domestic retail sales. However, gains were capped by renewed tariff threats from the US, particularly targeting Canadian aircraft, keeping USD/CAD volatile throughout the month.

Swiss Franc (CHF)
Safe-haven demand dominated. The Swiss Franc surged to levels not seen since 2011, benefitting from heightened geopolitical risk and concerns around US policy credibility.

Events Driving the Market

  1. US Trade and Geopolitical Developments
    January was dominated by abrupt shifts in US trade policy, including tariff threats against Europe, the UK and Canada, as well as geopolitical escalation in Venezuela. These events triggered sharp risk-off moves, significant USD volatility and repeated swings in global equity markets.
  2. Central Bank Divergence
    While the Federal Reserve and Bank of Canada both held rates steady, market focus shifted to future policy paths. Strong UK and Australian data contrasted sharply with softer Eurozone indicators, reinforcing currency divergence. Speculation around the next Fed Chair became a key driver late in the month.
  3. UK Economic Resilience
    Hotter-than-expected UK inflation, improving PMIs and solid retail sales significantly reduced expectations for imminent BoE easing. This underpinned Sterling and helped GBP outperform both the Euro and, at times, the US Dollar.
  4. Inflation Surprises in Australia
    Australia’s CPI shock reshaped expectations for the RBA, propelling the AUD higher and highlighting how sensitive FX markets remain to inflation data at this stage of the cycle.

Market Outlook

As markets move into February, attention will remain firmly on central bank leadership, policy credibility and geopolitical risk. The Federal Reserve’s next steps—and the confirmation of its future Chair—will be pivotal for USD direction.
Sterling appears well supported in the near term, but gains may become more measured as markets reassess global growth risks. The Euro remains vulnerable to weak growth dynamics and dovish ECB rhetoric, while commodity currencies will continue to react sharply to inflation data and global risk sentiment.

Volatility is likely to remain elevated, with policy divergence and political headlines continuing to dictate currency moves well into the first quarter of 2026.