Weekly Market Letter 25 January – 1 February , 2026

Decision: Held rates at 3.50%–3.75% (10-2 vote)

Dissents: Governors Miran and Waller preferred a 25bp cut

Tone Assessment: Neutral with dovish lean

Key Messages:

• Economy is on "firm footing" with "clear improvement in the outlook for growth"

• Labor market showing "signs of stabilization" even as hiring remains low

• Inflation "remains somewhat elevated" with core PCE likely around 3%

• Powell emphasized the Fed is "well positioned" to let data guide decisions

• Strong defense of Fed independence amid political pressure

What Changed vs. December:

• Upgraded growth assessment

• Less urgency around labor market concerns

• Removed forward guidance suggesting more cuts are imminent

• More explicit acknowledgment of being near neutral rate

Implications:

• Extended pause likely through at least March, possibly longer

• USD supported by reduced rate cut expectations

• Gold initially rallied but faced pressure from hawkish Warsh nomination

• US30 found stability around the Fed's improved growth outlook

US30 (Dow Jones)

The Dow had a volatile week, briefly touching new highs above 49,000 before retreating. Microsoft's 10% plunge after earnings (worst day since 2020) weighed heavily on sentiment, while the FOMC hold and Warsh nomination introduced fresh uncertainty. The index closed Friday at 48,892, posting a third consecutive weekly decline, though it still managed a modest 1.6% gain for January as a whole.

What the price action suggests right now: The market is digesting the Fed transition news while earnings volatility creates noise. The broader structure remains constructive, but the index appears to be searching for direction amid competing narratives.

Gold experienced its most volatile week in decades. Prices surged to a record high near $5,595 on Thursday, driven by dollar weakness, central bank buying, and safe-haven demand from Iran tensions. Then came the crash: the Warsh nomination triggered the largest single-day decline in nearly 40 years, with gold plunging over 8% on Friday to close around $4,893 (weekly close). The move erased weeks of gains in hours as the dollar rallied and the "Fed independence fear" trade reversed.

What the price action suggests right now: The parabolic move found exhaustion at key technical resistance. While the broader bullish structure remains intact, such extreme volatility signals caution. How gold behaves around the $4,800-5,000 zone in the coming days may indicate whether this was just profit-taking or something more significant.

WTI Crude Oil

Oil posted its strongest monthly gain since July 2023, rising above $65 per barrel as Iran tensions injected a meaningful geopolitical risk premium. Trump's warnings of potential military strikes, combined with Iran's announced Strait of Hormuz drills, kept traders on edge. Brent topped $70 for the first time since September. Despite the expected oversupply narrative for 2026, geopolitical factors currently dominate price action.

What the price action suggests right now: Price is accepting higher levels but driven primarily by headline risk rather than fundamental supply/demand shifts. If tensions ease, the premium could evaporate quickly given the projected 3-4 million bpd surplus.

EUR/USD

The euro rallied to multi-year highs near 1.19 earlier in the week as the dollar came under pressure from Trump's comments dismissing dollar weakness and speculation about potential US-Japan currency intervention. However, the pair pulled back sharply on Friday as the Warsh nomination boosted the dollar, closing near 1.1854. The pair remains near the top of its recent range despite the late-week reversal.

What the price action suggests right now: EUR/USD is consolidating gains after a significant rally. The 1.1800 level appears to be pivotal—holding above it keeps the broader dollar-bearish theme intact, while a sustained break below could signal a more meaningful correction.

GBP/USD

Sterling followed a similar pattern, reaching towards 1.38 before retreating on Friday's dollar strength to close near 1.3685. The pound remains supported by scaled-back BoE rate cut expectations after hawkish MPC commentary and resilient UK data. However, UK inflation at 3.4% remains a concern that limits the BoE's room for maneuver.

What the price action suggests right now: Cable shows acceptance of higher levels but is vulnerable to broader dollar moves. The pair may need fresh UK data catalysts to push meaningfully beyond the 1.38 area.

USD/JPY

The yen had a wild week. Reports that the New York Fed conducted a "rate check" on USD/JPY sparked speculation of coordinated US-Japan intervention, sending the pair tumbling from above 159 to below 153 early in the week—a 4% move. However, Treasury Secretary Bessent dismissed intervention talk, and the pair recovered to close near 154.49. The yen remains on track for its first monthly gain since August.

What the price action suggests right now: The intervention scare has introduced a ceiling for USD/JPY that traders are now respecting. Japanese authorities appear determined to defend the yen near multi-year lows, though actual intervention has not been confirmed. The 152-155 zone appears to be a new consolidation range.

USD/CAD

The Canadian dollar strengthened to 16-month highs around 1.35 per USD as oil prices rallied and the broader dollar weakened. The Bank of Canada held rates steady while projecting modest growth of 1.1% for 2026. The pair pulled back to close near 1.36 after Friday's dollar recovery, but the loonie has clearly benefited from the energy rally and reduced tariff concerns.

What the price action suggests right now: USD/CAD has broken below significant levels and is accepting lower prices. The 1.35-1.36 zone is now key support; as long as oil remains elevated and tariff fears stay contained, the loonie may continue to find support.