Following a strong run for the dollar and fresh highs in equity markets, traders are once again weighing whether momentum pauses or extends further.

The current US administration has increasingly framed economic and national security as part of the same strategy, treating tariffs, energy security and defence spending as interconnected levers rather than standalone policies.

Since 2025, tariff receipts are estimated to have generated between USD 250 billion and USD 270 billion, helping to finance domestic support initiatives while safeguarding industrial capacity.

Economic growth has remained robust. US GDP is estimated at around 4.3% in the third quarter of 2025, accelerating to roughly 5.4% in the fourth. This resilience has underpinned dollar strength and reduced the urgency for aggressive rate cuts, even as inflation pressures continue to ease.

Labour Data Underpins Dollar Support

Last week’s US labour market report sent mixed signals. Non-farm payrolls rose by 50,000 in December, undershooting expectations and pointing to a moderation in hiring momentum heading into the new year.

The unemployment rate dipped to 4.4%, while average hourly earnings increased by 0.3% month on month, keeping annual wage growth close to 3.8%.

This blend of slower job creation and firm wage growth left the dollar supported, but tempered confidence around imminent policy shifts.

The data pushed back against near-term rate cut expectations and fuelled broad-based demand for the dollar into the weekly close, most notably against the euro and the yen.

Energy Helps Keep Inflation in Check

Energy markets remain central to the broader macro picture. Rising US shale output, combined with renewed supply from Venezuela, has helped contain oil price volatility, easing inflationary pressures while limiting OPEC’s ability to exert pricing control.

For traders, this reduces the likelihood of energy-driven inflation shocks in the near term, reinforcing a market environment that favours range trading over defensive positioning.

The dollar continues to benefit. With a large share of global energy trade still settled through US channels, demand for dollar liquidity remains structurally strong.

This provides underlying support for the greenback, even as short-term moves remain sensitive to CPI and PPI releases. Risks persist, including legal challenges to tariff authority and longer-term de-dollarisation efforts. But these are more relevant to the medium-term outlook than immediate trading setups.

Against this backdrop, incoming inflation data takes on greater importance.

A stable CPI reading would reinforce the narrative of orderly disinflation within a solid growth and fiscal framework, keeping markets inclined towards consolidation rather than abrupt reversals.

Market Movements Of The Week

US Dollar Index (USDX)

– The dollar climbed all week and closed near the 99.10 resistance zone.
– Consolidation could open pullbacks toward 98.20 or 97.95.
– A break higher places focus on the 99.70 area.

Gold (XAUUSD)

– Gold pushed above the 4,500 swing high, extending the bullish structure.
– Follow-through above 4,550 would keep momentum intact.
– Failure to hold recent gains may invite short-term profit-taking.

S&P 500

– The index printed a fresh all-time high.
– Upside extension targets sit near 7,000 and 7,050.
– Traders may watch for slowing momentum after the strong run.

Bitcoin (BTCUSD)

– Bitcoin continues to trade within a wide range.
– 84,445 remains a key downside level to defend.
– Rallies toward 98,730 may face renewed selling pressure.

Key Events This Week

13 January

1. US CPI y/y, Forecast: 2.70%, Previous: 2.70%

Directional driver for USD and risk sentiment.

14 January

1. US PPI m/m, Forecast: NA, Previous: 0.30%

Focus on pipeline inflation pressure.

15 January

1. UK GDP m/m, Forecast: 0.00%, Previous: -0.10%

Growth data may impact sterling volatility

Summary

This week’s US CPI release is likely to determine whether recent trends continue or pause, particularly after a strong start to the year for both the dollar and US equities.

A steady inflation outcome would support the view that disinflation remains controlled rather than signalling a sharp economic slowdown, helping to anchor policy expectations and contain volatility.

With inflation, growth and policy narratives tightly intertwined, the upcoming data may decide whether markets pause to absorb gains or find scope to extend them further.

Create your live VT Markets account and start trading now.

Japan’s Finance Minister Satsuki Katayama met with US Treasury Secretary Scott Bessent to discuss the weak yen. This meeting led to a slight strengthening of the yen, indicating that Japan has limited tolerance for its decline. After the meeting, the USD/JPY exchange rate rose by 0.05% to 157.96. The Japanese Yen is affected by several factors, including the Bank of Japan’s policy, differences in bond yields between Japan and the US, and overall market sentiment.

Bank Of Japan Historical Interventions

The Bank of Japan has occasionally intervened in currency markets to manage currency values. Its past policies that favored low interest rates have caused the yen to weaken against other currencies. Recently, stepping back from these policies has provided some support for the yen. A key element in this situation is the difference between US and Japanese bond yields. In 2024, the Bank of Japan is gradually shifting its policies, which is helping to lessen this yield gap. The yen is often viewed as a safe-haven investment, making it more valuable during times of market uncertainty. Investors typically choose the yen when they seek stability. FXStreet offers market insights and analyses, urging investors to proceed with caution and clarifying that they do not guarantee the accuracy of their information.

Direct Communication With Washington

Japanese officials are now openly discussing concerns about the weak yen with Washington. This shift changes how currency traders operate. The current USD/JPY rate around 158.00 shows that verbal intervention is being used, signaling that Japan will not tolerate further depreciation. The main risk in the weeks ahead is a potential direct intervention in the currency markets to boost the yen. This strategy was used in late 2022 when officials invested over $60 billion to support the currency. Past experiences suggest that once verbal warnings are issued, the opportunity to bet against the yen tends to diminish quickly. For traders in derivatives, this implies that implied volatility for USD/JPY options may rise, resulting in higher prices but also greater value. Buying out-of-the-money JPY calls or USD/JPY puts may be a wise move to prepare for a sudden strengthening of the yen. This approach provides a defined-risk opportunity to benefit from potential market shifts. This perspective is backed by current data, as the interest rate gap between US and Japanese 10-year bonds has been narrowing. US yields are around 3.8%, while Japanese yields have increased to 1.2%. Additionally, recent figures from the Commodity Futures Trading Commission reveal that speculative net short positions against the yen are near multi-year highs, meaning a sudden change could cause a significant short squeeze and trigger a notable drop in the USD/JPY rate. Domestically, a weak yen continues to drive up import costs. In Japan, core inflation has persisted above 2.5% for several quarters, giving the Bank of Japan a strong reason to support the Finance Ministry’s push for a stronger currency. This common goal among fiscal and monetary authorities enhances the credibility of any potential actions taken. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

US President Donald Trump has imposed a 25% tariff on any country that does business with Iran. He announced this decision on Truth Social, and it took effect immediately. Following this announcement, the US Dollar Index (DXY) dipped by 0.24%, trading around 98.90. This index tracks the value of the US dollar against several other currencies.

Global Significance of the US Dollar

The US Dollar is the official currency of the United States and is widely used around the world. It makes up over 88% of all global foreign exchange activity, averaging $6.6 trillion each day as of 2022. The Federal Reserve influences the value of the US Dollar mainly by changing interest rates. In extreme situations, it can use quantitative easing, which often weakens the dollar. Conversely, quantitative tightening occurs when the Federal Reserve stops buying bonds, which usually strengthens the dollar. FXStreet offers this information for your reference and encourages thorough research before making investment decisions. Their content includes forward-looking statements and is not investment advice. FXStreet is not liable for any errors, omissions, or consequences arising from the use of this information, nor do they provide personalized recommendations.

Market Volatility Insights

With the new 25% tariff, we expect to see significant market volatility in the coming weeks. The CBOE Volatility Index (VIX), known as the market’s “fear gauge,” rose 15% to 22.5 in overnight trading, its highest level in three months. For traders, this means taking long positions on volatility through VIX futures or call options could be profitable as uncertainty spreads in the market. The most immediate effect is on crude oil since Iran is a major supplier. West Texas Intermediate (WTI) crude is already rising, and we expect this trend to continue as supply disruptions become more likely. The implied volatility on WTI options has soared, indicating that traders expect larger-than-usual price fluctuations, making long call options an appealing strategy to benefit from potential gains. The US dollar is showing weakness because these tariffs may negatively impact the American economy and strain relationships with key partners. In 2025, World Trade Organization data revealed that the EU and China had over $55 billion in trade volume with Iran, making them primary targets of this new policy. Therefore, we see opportunities to short the dollar against the Euro or Swiss Franc by using futures or options to speculate on further declines in the DXY. Looking back at the US-China trade disputes from 2018 to 2019, we saw that tariff announcements led to long-lasting risk aversion and hindered global growth. This past experience suggests that the current situation may also exert pressure on US equity markets, particularly for multinational corporations with complex global supply chains. We are considering buying put options on broad market indices like the S&P 500 as a hedge against a potential downturn. We’ll also monitor companies in the industrial and automotive sectors, especially in Germany and Japan. Last year’s trade statistics showed that these sectors have significant business dealings in Iran, making them vulnerable to the impact of US tariffs on their home countries. This creates specific opportunities to use put options on individual stocks that are heavily exposed. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The Influence of BOJ Policies

The value of the Japanese Yen is affected by the policies of the Bank of Japan (BoJ), Japan’s economic performance, and differences in bond yields. The BoJ has kept a very relaxed monetary policy for a long time, which has led to the Yen losing value. Any shift in this policy, along with changes in interest rates from other central banks, impacts the Yen’s value. In the last ten years, the BoJ’s approach has increased the difference in bond yields between Japan and the US, making the Dollar stronger than the Yen. Recently, changes in BoJ policy and adjustments in global interest rates are starting to reduce this gap. During times of market stress, many investors prefer the Yen for its perceived stability, which can boost its value against riskier currencies. The USD/JPY is currently trading high at around 158.10 and is facing conflicting factors. On one hand, potential snap elections in Japan are weakening the Yen, pushing this currency pair higher. On the other hand, tensions between the US government and the Federal Reserve are causing headwinds for the Dollar.

The Impact of US Political Risk

We need to be very careful at these levels, as similar situations have led to intervention in the past. Japanese authorities intervened to support the Yen when it dropped below 150 in 2022 and again in 2024. Buying protective put options to guard against a sudden drop could be a wise move. Right now, we should focus on the US Consumer Price Index data for December 2025. Recent inflation numbers have shown core inflation staying above 3%, making this report crucial for the Fed’s future decisions. If the numbers are higher than expected, the exchange rate could rise towards 160, while a lower number might cause a sell-off. The political situation in Japan is keeping the Yen weak for now, which supports the currency pair. However, this is likely a temporary issue that could change quickly after any elections. This uncertainty might keep volatility high, making short-term strategies like straddles a good option for capturing significant price movements in either direction. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Australia’s Westpac Consumer Confidence improved in January, rising to -1.7% from -9%. This change shows that consumers are feeling a bit better compared to the previous month. This rise may point to a more positive outlook on finances and the economy. While confidence is still negative, the smaller decline suggests Australians are less pessimistic at this time.

Market Surprise

This significant jump in consumer confidence, from -9% to -1.7%, surprises the market. It challenges the belief that consumers are weakening and that the Reserve Bank of Australia (RBA) will soon cut rates. We now need to consider that the economic outlook might be stronger than we thought. This data forces us to rethink the RBA’s strategy, especially since inflation remained stubborn at 3.8% in the last quarter of 2025. A strong consumer base could keep inflation high, leading the central bank to stay cautious longer than expected. We should consider buying put options on Australian 10-year government bond futures (XT) to prepare for higher yields. A more aggressive RBA outlook supports the Australian dollar. The AUD/USD pair, stuck in a range for weeks, may experience significant upward pressure as markets rethink rate cut expectations. In the upcoming weeks, buying AUD/USD call options or futures contracts could be a great way to take advantage of this change in sentiment.

ASX 200 Implications

The implications for the ASX 200 are more complicated. While better consumer confidence is good for retail and discretionary sectors, the risk of higher interest rates for a longer period might limit overall index gains, much like what we saw in early 2025. The increased uncertainty could raise market volatility, making a long straddle on the XJO index an appealing strategy to profit from large price movements in either direction. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

John Williams, President of the Federal Reserve Bank of New York, stated that the current US monetary policy is effectively managing inflation while keeping employment steady. He expects the unemployment rate to remain stable this year and anticipates inflation will drop to 2% by 2027. Williams forecasts that inflation will peak between 2.75% and 3% in the first half of the year but should begin to decrease later. He believes the economic outlook for 2026 is promising, with growth expected to be between 2.5% and 2.75%. He pointed out that inflation related to tariffs is mainly impacting Americans, but other inflation trends are looking mostly positive.

The Federal Reserve’s Data-Driven Decisions

The Federal Reserve will base its decisions on data, aiming to bring inflation back to the 2% target. The US Dollar Index recently hovered around 98.90, showing a slight drop of 0.24%. The Fed focuses on achieving price stability and full employment, primarily using interest rate changes as a tool. The Fed meets eight times a year to evaluate the economy and determine any changes in monetary policy. In certain cases, they might use Quantitative Easing, which can weaken the US Dollar, or Quantitative Tightening, which may strengthen it. Since the Federal Reserve has indicated there is no hurry to lower rates, borrowing costs are likely to stay high for the foreseeable future. The expectation is that inflation will peak around 3% in the first half of this year and will gradually drop to the target by 2027. This indicates a patient approach from the central bank over the next few meetings. This forecast aligns with recent data, as the December 2025 CPI report showed headline inflation steady at 2.9%. Additionally, the latest jobs report indicated an unemployment rate of 4.1%, giving the Fed little reason to expedite any policy changes. Markets suggest a high likelihood of no rate changes at the next two FOMC meetings.

Interest Rate Volatility Strategies

For traders in derivatives, this indicates that short-term interest rate volatility might decrease in the coming weeks. Strategies that benefit from stable rates, such as selling short-dated options on SOFR futures to collect premiums, could be advantageous. The CBOE Volatility Index (VIX) has already dropped to a 12-month low of 13.5, indicating reduced policy uncertainty. Despite a slight decrease, the US Dollar Index may find support around its current levels. A “higher-for-longer” interest rate environment makes the dollar appealing for investors seeking yields. Traders might use options to bet on the dollar remaining within a specific range against currencies like the Euro or Yen. A similar trend occurred after the aggressive rate hikes of 2022-2023, as observed from 2025. During that period, the Fed kept rates high for several months to fully ensure inflation was controlled before considering any cuts. This historical context supports the expectation of a prolonged pause in rate changes through the first half of 2026. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The GBP/JPY pair has climbed above the 210.00–212.00 range as the Japanese Yen weakens due to risk-off sentiment. The breakout is targeting the 213.00 and 213.50 levels, with support found at 212.00, 211.00, and the 20-day SMA around 210.68. Currently, GBP/JPY is trading at 212.88, up by 0.61%. The Japanese Yen shows varying strength against major currencies, proving to be the strongest against the Australian Dollar.

Technical Outlook For GBP/JPY

The technical outlook for GBP/JPY is positive, as it has moved beyond the 210.00-212.00 range. If it breaks above 213.00, the next targets will be 213.50 and 214.00. Support levels are at 212.00 and the 20-day SMA at 210.68. The Bank of Japan’s policies and bond yield differences impact the Yen’s value. Typically, the Yen is a safe-haven currency that appreciates during market stress. The BoJ’s current ultra-loose and slowly tightening monetary policies have affected its strength against other currencies. The GBP/JPY pair has clearly broken out of its recent range, moving closer to the 213.00 mark. This bullish trend should continue, with potential targets at 213.50 and then 214.00, driven by the weakening Japanese Yen. This risk-off sentiment is unusually affecting the Yen since it typically serves as a safe haven. Recent data indicated that UK wage growth remains steady at 4.5% year-over-year, suggesting the Bank of England will be slow to cut rates, which supports the Pound. In contrast, Japan’s low inflation restricts the Bank of Japan’s ability to tighten its policies aggressively.

Interest Rate Differential And Strategy

The interest rate differential is crucial to our strategy, making it enticing to hold the higher-yielding Pound against the Yen. The UK 10-year gilt yield is about 4.3%, much higher than the Japanese 10-year bond yield around 1.2%. This positive carry makes long GBP/JPY positions attractive for earning daily interest. Given the clear upward movement, we should consider buying call options to take advantage of this momentum with defined risk. Options with a 213.50 strike price set to expire in several weeks could provide a good opportunity for further gains. We expect the rally to continue as the technical picture aligns with underlying fundamentals. We should use the 212.00 level as critical support for any long positions. If it falls below this level, it would indicate that the breakout has failed, leading us to reassess our bullish outlook. Additional support is provided by the 20-day moving average near 210.70, which should also help maintain the uptrend. Looking at 2025, the Bank of Japan took very slow steps away from its ultra-loose monetary policy, disappointing expectations of a stronger Yen. This history suggests that the BoJ will continue to be cautious, limiting the Yen’s chances for any significant rally. Thus, we anticipate continued Yen weakness in the coming weeks. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

**Gold Prices Surge Amid Legal Action** Gold prices have jumped over $4,600, fueled by investor interest in safe-haven assets amid legal issues facing Federal Reserve Chair Jerome Powell. The XAU/USD reached $4,606, climbing more than 2% as geopolitical tensions heightened. News of potential legal investigations into Powell has pushed many investors toward safer investments like gold. The geopolitical landscape remains tense with Trump issuing warnings to Iran and dealing with unrelated controversies involving Greenland, which is further driving up gold prices. Upcoming U.S. economic data, including inflation and employment reports, is expected to impact market conditions. The U.S. 10-year Treasury yield saw a slight rise to 4.179%, yet gold prices kept climbing. Changes in consumer sentiment and inflation expectations were reported by the University of Michigan. Technically, gold’s upward trend is strong, with the Relative Strength Index indicating an overbought status. Resistance levels are seen at $4,630 and $4,650, with potential targets moving toward $4,700. However, a drop below $4,600 could lead to declines toward $4,450. Despite rising yields, gold remains attractive since it typically moves contrary to other reserve assets like the U.S. Dollar and Treasury yields, making it appealing during market uncertainty. **Financial Instruments and Strategies** The legal challenge against the Federal Reserve is creating significant market volatility. It’s a prime time to use options to take advantage of these price fluctuations. Gold’s rise above $4,600 represents a classic move to safety, providing a good opportunity for derivative investments. The current uncertainty is raising option premiums, reflecting the market’s fear. This situation echoes historical events. For instance, when the U.S. left the gold standard in 1971, it caused a major political shock that led to gold prices soaring over 400% in the following three years. More recently, central banks have been increasing their reserves, with net purchases in 2024 surpassing 1,000 tonnes for the third consecutive year, providing a strong price foundation ahead of this crisis. Given the positive momentum, buying call options with strike prices above the current market, such as $4,650 and $4,700, could be a direct way to gain from this surge. This strategy allows us to benefit from potential price increases while limiting our maximum risk to the premium paid for the options. The political nature of the current crisis suggests that erratic and quick price jumps are quite possible. We must also be ready for a sudden downturn if the political situation calms. Buying put options below critical support levels, like the $4,500 mark, can act as an effective hedge against our long positions. For traders who are optimistic but cautious about costs, using bull call spreads can reduce the entry price while capping potential gains. This crisis extends beyond gold and poses a direct challenge to the credibility of the U.S. Dollar. The Federal Reserve’s independence is crucial to the dollar’s value, and challenges to it weaken that status, which is why EUR/USD remains steady above 1.1650. We should consider derivatives on the U.S. Dollar Index (DXY) or major currency pairings to prepare for further dollar weakness. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The New Zealand Institute of Economic Research has reported a rise in business confidence in New Zealand, climbing to 48% in the fourth quarter. This is a notable increase from just 18% in the previous quarter, indicating a more positive view of the country’s economy. This shift in confidence could influence future investments and business plans in the area. Traders and analysts will likely keep a close eye on how this newfound optimism affects economic growth and activities in the upcoming months.

Sharp Rise in Business Confidence

The jump in business confidence to 48% in the final quarter of 2025 is a strong positive sign for New Zealand’s economy. This marks a big change from the cautious feelings that dominated much of last year. This optimism suggests that businesses are ready to invest and take action, which should be visible in the next economic reports. This boost in confidence changes the outlook for the New Zealand dollar, making it more appealing. We think traders should look into buying NZD/USD call options to take advantage of possible currency gains in the coming months. Recent data shows the kiwi has strengthened by 0.8% against the US dollar since January 2026, and this rise in confidence offers solid reasons for that trend to continue. The Reserve Bank of New Zealand will likely see this as a sign that the economy is performing better than expected, reducing the likelihood of interest rate cuts. We saw a similar situation in late 2021, where increased confidence led to several significant rate hikes to manage inflation. Traders should now factor out rate cuts for 2026 and may consider using interest rate swaps to prepare for a more aggressive approach from the central bank.

Focus on Q4 2025 Inflation Data

This boost in business confidence now draws attention to the upcoming Q4 2025 inflation data, which will be released in about two weeks. If the Consumer Price Index (CPI) report is strong, it will support the optimistic outlook for businesses and could lead to significant changes in the RBNZ’s policy. We anticipate increased market volatility around the release of this important inflation statistic. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The US Dollar dropped on Monday due to worries about the Federal Reserve’s independence and expectations of a more cautious Fed position. This decline occurred just before the important US Consumer Price Index release set for Tuesday. The US Dollar Index fell briefly to around 98.70 after four days of gains, as selling pressure increased. EUR/USD rebounded, reaching close to the 1.1700 level. Soon, we will learn about Germany’s GDP Growth, Industrial Production, and the Euroland Trade Balance. GBP/USD saw a significant rise because of the US Dollar’s decline, aiming for the 1.3500 level, with the BRC Retail Sales Monitor coming up.

Forex Market Conditions

The USD/JPY continued its climb, going over the 158.00 level thanks to better risk conditions. Key upcoming data includes the Current Account, Bank Lending, and the Eco Watchers Survey. AUD/USD regained the 0.6700 level, with the Westpac Consumer Confidence Index due in Australia. WTI prices increased amid worries about potential supply issues in Iran and developments in Venezuela. Gold hit a record high of $4,630 per troy ounce, supported by pressure on the US Dollar and increased geopolitical tensions in the Middle East. Silver also reached a milestone, exceeding $85.00 per ounce for the first time. We are currently witnessing the effects of concerns about Fed policy that emerged last year. The central bank’s shift towards a more cautious approach in 2025, despite ongoing inflation, has shaped current market conditions. The most recent December 2025 CPI data indicates inflation remains stubbornly high at 4.2% year-over-year, putting the Fed in a challenging position.

Financial Market Strategies

The US Dollar Index (DXY) dipped below 99 during critical times in 2025 and has continued to decline, now trading near 95.50. This shows that the theme of dollar weakness is persistently present. Derivative traders might consider buying puts on the dollar or establishing bearish call spreads to take advantage of further declines as upcoming FOMC meetings approach. This ongoing weakness in the dollar benefits other major currencies, similar to last year when EUR/USD tested 1.1700. With the European Central Bank indicating a more aggressive stance to address its own inflation, buying call options on EUR/USD appears to be a smart strategy. The focus should be on positioning for a growing policy divergence between a cautious Fed and other G10 central banks. The situation with the Japanese Yen is different, as USD/JPY continues to rise despite the overall dollar weakness due to the Bank of Japan’s very loose policy. We recall this pair crossing 158.00 in 2025 and it has remained high ever since. This divergence provides opportunities for volatility trades, such as long straddles, to profit from sudden moves if either central bank unexpectedly alters its direction. The increase in precious metals we observed in 2025 was directly linked to the dollar’s decline and geopolitical risks. After hitting that record near $4,630 per ounce, gold has stabilized but stays strong around the $4,500 level. Using call options on gold and silver futures is a direct way to trade ongoing concerns about the dollar’s value and ongoing tensions in the Middle East. With conflicting economic signals—like the modest 1.4% GDP growth in Q4 2025—and persistent inflation, uncertainty in the market is quite high. Implied volatility in major equity indices and currency pairs is likely to increase in the coming weeks. Traders should consider buying volatility through instruments like options on the VIX or currency ETFs. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now