Markets extended their recent advance on Monday as technology shares continued recovering from last week’s AI-related selloff, while the US dollar weakened broadly amid soft inflation expectations data and signs of steady monetary policy across major central banks.
Check out the forex news and economic updates you may have missed in the latest trading session!
Forex News Headlines & Data:
- Liberal Democratic Party (LDP) secured 316 seats this weekend, forming a two-thirds supermajority (352 seats) with the Japan Innovation Party (JIP); Takaichi now holds an unprecedented mandate to reshape the Japanese economy
- Japan Average Cash Earnings for December 2025: 2.4% y/y (1.0% y/y forecast; 0.5% y/y previous)
- Japan Overtime Pay for December 2025: 0.9% y/y (1.6% y/y forecast; 1.2% y/y previous)
- Japan Current Account for December 2025: 7,288.0B (1,400.0B forecast; 3,674.0B previous)
- Japan Bank Lending for January 2026: 4.5% y/y (4.6% y/y forecast; 4.4% y/y previous)
- Australia Household Spending for December 2025: -0.4% m/m (0.1% m/m forecast; 1.0% m/m previous); 5.0% y/y (6.0% y/y forecast; 6.3% y/y previous)
- Japan Eco Watchers Survey Outlook for January 2026: 50.1 (50.3 forecast; 50.5 previous)
- Swiss Consumer Confidence for January 2026: -30.0 (-31.0 forecast; -31.0 previous)
- Canada BoC Market Participants Survey: The survey shows market participants expect a soft Canadian growth backdrop, inflation close to target, and a very steady BoC policy rate through 2026, with liftoff pushed into 2027.
- U.S. Consumer Inflation Expectations for January 2026: 3.1% (3.4% forecast; 3.4% previous)
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Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay – Chart Faster With TradingView
Monday’s session reflected continued optimism in equity markets following last week’s sharp tech sector rebound, with gold establishing new records above $5,000 per ounce while the dollar weakened against major currencies.
The S&P 500 climbed 0.54% to close at 6,962, extending Friday’s rally that had added $1 trillion to the index’s value. The advance appeared to correlate with ongoing rotation back into technology shares after the previous week’s AI-driven volatility. Chipmakers led the charge with a 1.4% gain, while software companies extended their back-to-back advance to nearly 7%. Oracle surged 9.6% after announcing strong quarterly results. The session’s relatively modest volatility suggested traders were positioning cautiously ahead of Wednesday’s employment report and Friday’s consumer price index data, which are expected to provide crucial signals for Federal Reserve policy trajectory.
Gold posted gains of 0.72% to settle around $5,070. The precious metal’s advance appeared to reflect multiple tailwinds, including soft Dollar positioning ahead of key US economic data releases, and possibly inflation hedging despite the softer-than-expected US consumer inflation expectations reading. With no direct gold-specific catalysts during the session, the steady climb also likely reflected a technical rebound after last week’s fall in precious metals.
Bitcoin saw choppy price action but traded essentially flat, edging up 0.14% to close near $70,407. The cryptocurrency’s muted performance contrasted with the broader risk-on tone in equity markets, possibly reflecting consolidation after recent volatility or positioning adjustments as traders awaited clearer directional signals from upcoming US economic data.
WTI crude oil advanced 1.71% to settle around $64.25 per barrel. The rally appeared to correlate with ongoing geopolitical tensions in the Middle East, as the US advised ships to avoid Iranian waters when navigating the Strait of Hormuz. The energy sector strength provided some support to risk sentiment, though the magnitude of the move remained relatively contained compared to oil’s response to more acute supply disruptions.
US Treasury yields declined 0.14% with the 10-year note settling near 4.211%. The modest drop in yields likely reflected a combination of factors, including the softer US consumer inflation expectations, positioning ahead of Wednesday’s employment report, and possibly concerns about Chinese regulators reportedly urging banks to curb US government bond exposure. The bond market’s relatively muted reaction suggested traders were maintaining cautious positioning rather than making significant directional bets ahead of the week’s key data releases.
FX Market Behavior: U.S. Dollar vs. Majors
Overlay of USD vs. Majors – Chart Faster With TradingView
The US dollar traded with a net bearish tone throughout Monday’s session, closing as the worst performing major currency as softer inflation expectations data and steady central bank commentary weighed on the greenback.
During the Asian session, the dollar moved mostly sideways with an arguably net bearish lean against the major currencies. Japanese data showed average cash earnings for December rising 2.4% year-over-year, significantly above the 1.0% forecast and the previous 0.5% reading. The stronger wage data provided some support to the yen as traders reassessed Bank of Japan policy trajectory, though the impact remained relatively contained as the data also showed overtime pay coming in below expectations at 0.9% versus the 1.6% forecast. Japan’s current account surplus surged to 7,288 billion yen, far exceeding the 1,400 billion forecast, reflecting strong external demand and possibly repatriation flows.
The London session brought continued dollar weakness. ECB President Lagarde delivered remarks to the European Parliament emphasizing the central bank’s commitment to price stability and fostering a stronger Europe, while noting that inflation stood at 1.7% in January and was expected to stabilize sustainably at the 2% target. Her comments suggested the ECB views its current policy stance as appropriate, with the central bank having held rates unchanged at its last meeting. Swiss consumer confidence came in slightly better than expected at -30.0 versus -31.0 forecast, providing modest support to the franc. The dollar’s weakness against European currencies appeared to reflect broad positioning adjustments rather than specific data-driven moves, as traders likely positioned ahead of top tier US data this week.
The US session saw the dollar continue its net bearish trajectory from the London equity open through the afternoon close. The key catalyst came with US consumer inflation expectations for January falling to 3.1% from 3.4% previously, coming in well below the 3.4% forecast. The softer inflation expectations reading likely reinforced market views that the Federal Reserve has room to consider rate cuts in 2026 if labor market conditions continue softening, even as inflation remains somewhat elevated. The Bank of Canada’s Market Participants Survey released during the session showed expectations for a soft Canadian growth backdrop with inflation close to target and a very steady policy rate through 2026, with rate increases not expected until 2027.
At Monday’s close, the dollar posted losses against all major currencies, likely reflecting a combination of softer inflation expectations data, positioning ahead of Wednesday’s crucial employment report, and ongoing market assessment that major central banks globally are maintaining steady policy stances while the Fed faces increasing pressure to consider easing if labor market conditions continue deteriorating.
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Upcoming Potential Catalysts on the Economic Calendar
- Japan Household Spending for December 2025 at 11:30 pm GMT
- Japan Leading Economic Index Prel for December 2025 at 5:00 am GMT
- Germany Industrial Production for December 2025 at 7:00 am GMT
- Germany Balance of Trade for December 2025 at 7:00 am GMT
- U.K. Halifax House Price Index for January 2026 at 7:00 am GMT
- France Balance of Trade for December 2025 at 7:45 am GMT
- Swiss Unemployment Rate for January 2026 at 8:00 am GMT
- Euro area ECB Survey of Professional Forecasters at 9:00 am GMT
- U.K. BBA Mortgage Rate for January 2026 at 10:00 am GMT
- Canada Employment Situation Update for January 2026 at 1:30 pm GMT
- Canada Ivey PMI s.a for January 2026 at 3:00 pm GMT
- University of Michigan Consumer Sentiment Index & Inflation Expectations for February 2026 at 3:00 pm GMT
- U.S. Fed Jefferson Speech at 5:00 pm GMT
- U.S. Consumer Credit Change for December 2025 at 8:00 pm GMT
Tuesday’s calendar features US retail sales data for December that could provide insight into consumer spending resilience heading into year-end, though traders will be parsing the figures carefully given ongoing concerns about the sustainability of consumption growth amid elevated prices and moderating wage gains. The Employment Cost Index will offer a comprehensive view of labor cost pressures, which remains a key focus for Federal Reserve policymakers balancing between inflation concerns and labor market cooling.
Australian business confidence data will be closely watched for signs of how the domestic economy is performing amid global growth uncertainties. Fed speakers Hammack and Logan could provide additional color on policymakers’ current assessment of economic conditions following Monday’s softer inflation expectations reading, particularly regarding the balance between price stability and labor market health as the central bank considers its next policy moves.
Stay frosty out there, forex friends!
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