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The USD suffered its worst weekly decline since May 2025 on two fronts. First, the DXY’s decline from 99.3 to 98.2 over January 19-20 was driven by US President Trump’s sudden TACO on threatened tariffs against the EU over Greenland. Second, the DXY’s plunge from 98.5 to 97.4 last Friday was a sharp USD/JPY pullback on suspected interventions, which spilled over into broader USD selling. The DXY Index plunged 1.8% to 97.6 last week, its lowest close since September. DXY needs to break a support level of 97.2 to extend its decline to the floor of the 96.2-100.5 range set since mid-2025.
We expect the Fed to pause at its January 27-28 FOMC meeting, following three consecutive rate cuts. After the last 25 bps cut to 3.75% on December 10, the US Treasury 10Y yield rose from 4.15% to 4.22%. The higher yield is considered USD-positive when interpreted as a stabilizing labour market and stronger-than-expected growth, reinforcing a gradual Fed cut cycle. However, the rise becomes USD-negative when driven by fiscal worries, echoing the debt dynamics that pushed JGB yields higher.
USD/CAD plunged 1.6% to 1.37 last week, near a significant trendline support around 1.3660. The Bank of Canada should keep the overnight lending rate unchanged at 2.25% (the low end of its estimated neutral range of 2.25-3.25%) at its January 28 meeting. According to the BOC Survey for 4Q25, 60% of firms expected CPI inflation of 2-3% over the next two years, suggesting wage growth has stabilized amid continued job cuts. US President Trump’s threat to impose a 100% tariff on Canada if it pursues a trade deal with China will likely raise the stakes ahead of the July review of the US-Mexico-Canada Agreement (USMCA).
We expect the Monetary Authority of Singapore to keep the three parameters – the slope, mid-point, and width – of the SGD NEER policy band unchanged at its policy review scheduled for January 29. Per our model, the SGD NEER was 0.25% below the band’s ceiling this morning, suggesting that USD/SGD’s downside is limited to 1.2675, barring further declines in the USD globally.
Markets are on high alert for Japanese action to arrest the JPY’s slide. USD/JPY plunged twice last Friday. The first decline, from 159.23 to 157.37, in late Asian trading was driven by suspected FX intervention by the Japanese authorities. The second decline from 158.23 to 155.63 in the US session was triggered by reports that the New York Fed conducted rate checks on USD/JPY. On Sunday, Prime Minister Sanae Takaichi said that her government will “take necessary steps against speculative or abnormal market moves” when asked about the weaknesses in the JGB market and the JPY in a talk show.
However, there has been no confirmation of actual intervention, which could limit downside follow-through in USD/JPY, unless it pushes decisively below December’s low of 154.35 and the 100-day moving average support level at 153.75. We are watching to see whether USD/JPY repeats USD/KRW’s recent experience. The sharp decline in USD/KRW from 1480 to 1430 during December 24-30 appeared consistent with suspected intervention. Without official confirmation, USD/KRW’s rebound to 1480 highs by mid-January highlighted the lack of follow-through, allowing broader USD strength and structural KRW constraints to reassert themselves.
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January 26 in history
In 1905, the world's largest diamond, the Cullinan, weighing 3,106.75 carats, was found near Pretoria in South Africa.
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