US President Donald Trump made headlines at the World Economic Forum in Davos, discussing Greenland and the US economy. He mentioned wanting to talk about Greenland with European leaders and downplayed any NATO threats if the US took control. Initial market jitters faded as Trump reassured everyone that there would be no aggressive moves to acquire Greenland. The US Dollar Index (DXY) is around 98.60, attempting to bounce back from a two-week low. The US dollar gained against the Swiss Franc but had mixed results against other main currencies. The EUR/USD pair is close to 1.1700, reversing its weekly gains, while the AUD/USD has climbed to levels we last saw in October 2024.

Inflation and Currency Movements

In the UK, inflation rose from 3.2% to 3.4% in December, leaving GBP/USD mostly unchanged. Meanwhile, gold prices peaked at a record high of $4,888 before settling around $4,810, thanks to less geopolitical tension. Key upcoming economic data includes Australian employment figures, US GDP and PCE, and New Zealand’s Q4 CPI. We are also waiting for monetary policy decisions and retail sales numbers from major economies. Gold remains a sought-after safe-haven asset, with central banks boosting their reserves. A year ago, we were focused on market reactions to the turmoil in Greenland and unpredictable presidential comments. Now, the attention has shifted to the economics of central bank policies. This means our trading strategies should focus less on quick reactions and more on long-term trends in monetary policy. Back in January 2025, the US Dollar Index (DXY) was struggling around 98.60 due to political confusion. Fast forward to January 2026, and the dollar is much stronger, with the DXY holding around 104.50, driven by a robust US economy. This strength hints that selling out-of-the-money call options on EUR/USD could be a good way to collect premiums. Looking back, EUR/USD was near 1.1700 and GBP/USD was flat near 1.3430. Today, EUR/USD is fighting to stay above 1.0800, and GBP/USD has dropped to the 1.2700 range, showing the dollar’s dominance over the past year. Traders should keep an eye on these crucial levels for possible new short positions or protective options.

Currency Divergence and Opportunities

A year ago, the Australian dollar was strong at 0.6777, but it has since dropped to around 0.6600 as concerns about global demand, especially from China, have risen. In contrast, USD/JPY has pulled back from 158.10 in 2025 to about 148.00, as markets consider the Bank of Japan’s possible shift from negative interest rates. This gap between commodity currencies and the yen offers pair trading opportunities. The speculative excitement that drove gold to an all-time high of $4,888 last year has faded. With those geopolitical concerns now less pressing, gold trades at a more realistic price of $2,030 per ounce. Its current movement is more about when the Federal Reserve might start cutting interest rates rather than panic. In the coming weeks, our attention will be on inflation figures, particularly the US Personal Consumption Expenditures (PCE) price index, rather than GDP or employment data. In 2025, any sign of defeating inflation was met with cheers, but now the focus is on how long interest rates will remain high. Central bank meetings are expected to bring volatility, making straddles or strangles on major currency pairs a sensible trading strategy amidst the uncertainty. Create your live VT Markets account and start trading now.

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