Markets ended the week wrestling with a central question: how do policymakers define and enact a "strong dollar" policy when the currency is moving lower versus major peers? The greenback slid to its weakest level since early 2022 after a combination of factors - including expectations of coordinated U.S.-Japan steps to support the yen - set off a fresh run of foreign exchange volatility. President Donald Trump described the dollar as "great" and said it would "find its level," a comment that coincided with sharper depreciation that was later countered on the policy front when Treasury Secretary Scott Bessent publicly reiterated the administration's long-standing "strong dollar" stance.
That sequence of remarks and clarifications does not necessarily indicate contradiction. As market analysts noted, a currency can properly be called "strong" even as it falls in value against other currencies for a period - particularly when the unit in question enjoyed a nearly 50% appreciation in the decade before 2024. At the same time, officials who signal openness to changing policy toward a lower dollar risk triggering effects they may not fully anticipate.
Investor reaction this morning appeared relatively calm as attention shifted to the race to succeed Jerome Powell as Federal Reserve Chair. Former Fed governor Kevin Warsh emerged as the new frontrunner in that contest, and while Warsh has critiqued elements of current central bank policy, he is not generally seen as an advocate of aggressive monetary easing compared with some other potential candidates. President Trump said he would make his selection public later today, a development markets and policy observers are watching closely.
Currency action was conspicuous elsewhere. The yen strengthened toward roughly 152 per dollar on Tuesday before conceding some of those gains, a swing that initially reflected expectations of intervention. While that move may signal that intervention pressures are easing, history suggests such episodes can persist and unexpected reversals remain possible. The euro also rallied, briefly climbing above $1.20 for the first time in four years, a threshold that could complicate matters for European industrial exporters and presents a challenge for the European Central Bank as it approaches its next policy meeting.
Meanwhile, diplomatic and commercial activity continued around the world - often without direct U.S. involvement. The European Union and India finalized a long-awaited trade agreement this week, and Britain and China announced what officials described as a reset in relations after leaders pledged enhanced economic cooperation. European governments also unveiled plans to work jointly on a large offshore wind network, a move framed as part of efforts to reduce reliance on U.S. liquefied natural gas (LNG) imports and to address rising renewable energy costs.
Energy markets saw notable shocks. U.S. natural gas prices surged as an Arctic blast swept across the country, pushing demand for heating fuel sharply higher. The spike rippled into overseas markets and underscored the increasing globalization of what has been a U.S.-dominated LNG trade. Attention then shifted back to the Middle East, where a U.S. naval deployment sailed toward Iran. Although oil prices eased slightly on Friday amid signs of resumed negotiations between Washington and Tehran, tensions contributed to roughly a 15% rise in oil prices during January.
Market participants assessing crude see prices remaining within a relatively tight band unless a major development in Iran delivers a durable shock to the global supply-demand balance. Without sustained disruptions, analysts expect oil to trade within existing ranges rather than break out into a new trend.
On Wall Street, earnings from a slate of mega-cap technology companies - including Meta, Microsoft, Apple and Tesla - produced mixed results. The prevailing takeaway was that investors are willing to accept substantial AI spending by these firms, but only on the condition that spending supports continued revenue growth. This nuance appears to be shaping valuation judgments across the sector.
The Federal Reserve's policy gathering this week was notable less for fireworks than for its lack of them. As widely anticipated, benchmark interest rates were held steady and the post-meeting press conference produced no major surprises. Chair Jerome Powell declined to weigh in on surrounding debates about the institution's independence but did offer counsel to whoever will succeed him. Until the president's selection is confirmed, both Powell and the broader financial community are watching closely for clarity on leadership at the central bank.
For readers seeking deeper analysis and background in markets and commodities, members of the ROI team highlighted several pieces over the weekend. Mike Dolan flagged work by NYU professors Viral Acharya and Toomas Laarits for CEPR's VoxEU, arguing that the rise in U.S. Treasury yields since last April's tariff shock can be traced to a decline in the "convenience yield" associated with Treasuries' safe asset status. Ron Bousso recommended energy analyst Nat Bullard's expansive annual deck of slides as a comprehensive source of data and charts on energy and decarbonization.
Jamie McGeever drew attention to a Carlyle Group analysis titled "Bubbles as a Feature Not a Bug," which situates the current AI boom within a longer history of transformative technologies and contends that speculative excesses are an endemic part of technological revolutions. Clyde Russell pointed readers to a report from Australia's electricity market operator showing renewables supplied more than half the nation's power for a full quarter - a record that coincided with weaker wholesale prices and which the report uses to argue that high renewables penetration can be both reliable and cost-effective.
Andy Home cited TradingPedia research indicating electric and hybrid vehicles now account for over 25% of European auto sales, with the analysis broken down by country and manufacturer. Gavin Maguire highlighted an opinion piece in Infrastructure Investor that warns growth in the U.S. power system could be constrained by a global shortage of gas turbines, which cannot currently keep pace with demand.
On the audio front, the Morning Bid podcast this week examined the latest Fed meeting, tensions involving Iran, and takeaways from recent mega-cap earnings, with hosts previewing the week ahead for subscribers. In related commentary, a Gulf Intelligence daily podcast conversation discussed how China increased strategic crude purchases last year to bolster its reserves, a point of interest for energy market watchers.
As markets and policymakers digest the interplay of currency fluctuations, geopolitics and energy shocks, the themes to watch remain clear. Currency policy rhetoric and the path of the dollar will affect export competitiveness and central bank calculations, energy price swings tied to weather and geopolitical risk will continue to test supply chains and inventories, and investor appetites for technology-sector spending will hinge on tangible growth outcomes.
Markets now await the president's Fed chair nomination and further signals on whether fiscal and currency policy rhetoric will translate into concrete shifts. Until then, volatility across FX, energy and equities is likely to remain an active part of the trading landscape.
Weekend reading and listening recommendations from the ROI team
- Mike Dolan, ROI Finance & Markets Columnist: NYU professors Viral Acharya and Toomas Laarits for CEPR's VoxEU on the decline in the "convenience yield" tied to Treasuries and its link to rising U.S. yields since last April's tariff shock.
- Ron Bousso, ROI Energy Columnist: Nat Bullard's annual 200-slide deck on energy and decarbonization.
- Jamie McGeever, ROI Markets Columnist: Carlyle Group analysis "Bubbles as a Feature Not a Bug," situating the AI boom within technological revolutions.
- Clyde Russell, ROI Asia Commodities and Energy Columnist: Report from Australia's electricity market operator showing renewables supplied over half the nation's power for a full quarter.
- Andy Home, ROI Metals Columnist: TradingPedia analysis showing electric and hybrid cars now represent over 25% of European auto sales, with country and manufacturer breakdowns.
- Gavin Maguire, ROI Global Energy Transition Columnist: Infrastructure Investor opinion piece arguing the U.S. power system's growth could be constrained by a global shortage of gas turbines.
Podcast and audio highlights
- Morning Bid podcast discussion covering the Fed meeting, Iran tensions, and the week’s mega-cap earnings; subscribers can access a preview of the week ahead.
- Gulf Intelligence daily podcast on China’s increased strategic crude purchases last year.