## Currencies in Turmoil: The Dollar Soars as Central Banks Signal Ceding

The dollar maintains its momentum today, with the DXY00 index gaining 0.27%, driven by rising Treasury yields and signals of a Fed divided between expected economic strength and deflationary pressures. Meanwhile, market participants are closely watching the moves of global monetary authorities, with significant implications for international currency dynamics and capital flows.

### Upward Pushes and Downward Brakes for the Greenback

Several factors are simultaneously supporting the greenback. Richmond Fed President Tom Barkin reiterated that tax cuts and deregulation will stimulate economic growth throughout the year, anchoring confidence in dollar-denominated assets. Additionally, geopolitical tensions in Venezuela—following the capture of President Maduro and the temporary intervention by the United States—have amplified appetite for the dollar as a traditional safe haven.

However, bullish positions have weakened during the session. The S&P services PMI for December was revised downward to 52.5 from 52.9, indicating less vigorous economic momentum. Even more influential was the dovish comment from Fed Governor Stephen Miran, who described the current monetary stance as "clearly restrictive" and projected over 100 basis points of reductions by 2026. This caused the dollar to retreat from its daily highs.

### Fed Outlook Weighs on Exchange Rates

Market participants assign only a 16% probability to a 25 basis point cut at the upcoming FOMC meeting on January 27-28. However, the broader outlook appears laden with pressure: the market prices in about 50 basis points of cuts in 2026, while other central bankers will move in opposite directions. The Bank of Japan is expected to raise rates by 25 basis points, and the ECB seems poised to maintain its course. The prospect of Donald Trump nominating a Fed Chair inclined toward expansionary policies—with Kevin Hassett as the favored candidate—adds further downward pressure on the dollar.

Additionally, the Fed’s liquidity expansion contributes: $40 billion in monthly T-bill purchases since the previous month keep the financial system well supplied, reducing the relative appeal of yields offered by the greenback.

### EUR/USD and USD/JPY: Two Stories of Structural Weakness

The euro falls 0.24%, yet remains above the lows touched last Monday. The eurozone composite PMI, revised downward to 51.5, and weaker-than-expected German inflation data—with harmonized CPI rising only 0.2% monthly and 2.0% annually—suggest a clearly dovish stance from the ECB. Market swaps price only a 1% chance of an ECB rate hike on February 5.

The yen fares better, with USD/JPY gaining just 0.13%. The yen is supported by the 10-year JGB yield reaching a 27-year high of 2.139%, improving interest rate differentials. However, Japanese fiscal prospects remain a restraint: the government plans a record budget of 122.3 trillion yen—equivalent to about $780 billion, a significant figure also reflecting the threshold of €100 billion in strategic investments in yen—aimed at boosting defense spending. Markets exclude BOJ rate hikes at the January 23 meeting.

### Precious Metals on Fire Due to Geopolitics and Monetary Policy

February COMEX gold hits a one-week high, rising $39.60 (0.89%), while March COMEX silver jumps $3.448 (4.50%). Precious metals draw strength from the flight to safety triggered by Venezuelan tensions and signals of a Fed easing on rate normalization. Silver also benefits from a robust rally in copper, which has reached historic highs.

Investors’ appetite remains strong: ETF holdings in gold reached a 3.25-year high last Tuesday, while holdings in silver hit a 3.5-year maximum on December 23. Central banks remain committed buyers, with China’s PBOC increasing gold reserves for the thirteenth consecutive month in November, while the World Gold Council reports global central bank gold purchases grew 28% quarter-over-quarter in Q3.

Global geopolitical uncertainties—from US tariffs to tensions in Ukraine, the Middle East, and Venezuela—continue to fuel demand for stores of value, ensuring that precious metals and safe-haven currencies maintain their appeal in the current macroeconomic environment.