Trade tensions are impacting several currency pairs, such as XAU/USD, Silver, EUR/USD, GBP/USD, USD/CAD, and AUD/USD. The CFTC GBP NC Net Positions in the UK improved from £-22K to £-16.2K. The EUR/USD has weakened, dropping below 1.1900 as the US dollar holds strong. The GBP/USD is trending downwards toward 1.3700, while gold hovers just above $5,000.

Dow Jones and INR Impacted

The Dow Jones Industrial Average fell due to uncertainty about Warsh’s nomination to the Fed. The Indian Rupee (INR) was affected by the Reserve Bank of India’s (RBI) likely pause on rate cuts. Meanwhile, USD/KRW faces upward risks because of a new budget proposal. Microsoft experienced a sell-off, leading to a $400 billion market loss, the second largest ever recorded. Additionally, Bitcoin, Ethereum, and Ripple in the cryptocurrency market faced increased sell-offs. For traders in 2026, FXStreet has a comprehensive list of top forex brokers. This includes brokers with low spreads, the best for trading EUR/USD, and options suitable for MENA and Latam regions. The guide also highlights brokers offering high leverage, Islamic accounts, and those using the MT4 platform. The market is being powered by a rising US Dollar, and we should prepare for this trend to continue in the short term. The recent Producer Price Index for December 2025 showed an unexpected 0.6% month-over-month rise, indicating inflation is increasing. This data, along with Kevin Warsh’s Fed nomination, gives a strong boost to the dollar.

Warsh Nomination and Market Impact

The Warsh nomination may signal the Federal Reserve’s intent to adopt a more aggressive policy on interest rates. Known for his hawkish stance as a former Fed governor, he likely favors tighter monetary policy to fight inflation. Derivative traders should now expect a greater likelihood of quicker rate hikes in 2026 than was anticipated just weeks ago. This change has fostered a risk-off environment, evident in the equity markets and rising volatility. The Dow’s decline and Microsoft’s notable sell-off directly reflect concerns about increasing borrowing costs affecting corporate profits. The VIX, a key measure of market fear, surged above 25 last week, a level we haven’t seen since a brief market correction in the third quarter of 2025. For currency traders, buying puts on EUR/USD and GBP/USD is a straightforward strategy as the dollar continues to rally. However, the latest CFTC data shows a decrease in net short positions on the British Pound. This suggests that while the pound remains weak against the dollar, the most aggressive sellers are taking profits—indicating we should be cautious about pushing down too far. The outlook for gold is looking increasingly bearish, with prices already under pressure just above $5,000 an ounce. A rising dollar makes gold more expensive for other currencies, while expectations of higher interest rates raise the opportunity cost of holding non-yielding gold. We anticipate continued selling pressure, making call options riskier and put options more appealing. Lastly, the broad sell-off in cryptocurrencies is a typical response during times of uncertainty. As seen in market fluctuations during 2025, institutional investors quickly move away from speculative assets like Bitcoin and Ethereum when uncertainty rises. This trend highlights the current market preference for the US Dollar over higher-risk assets. Create your live VT Markets account and start trading now.

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