The two sources of strain on the global capital markets have diminished. President Trump has retreated from military threats regarding Greenland and has decided against proceeding with the tariff threat on European countries set for February 1. Following a significant sell-off on Tuesday, reminiscent of the events in the UK during Prime Minister Truss’s tenure, the Japanese bond market experienced a recovery for the second consecutive session. A collective sigh of relief has been observed. Equities have reached a state of stabilization. Gold has experienced a pullback. The dollar has established a more robust position. Indeed, the greenback has appreciated against all G10 currencies except for the yen. Conversely, the majority of emerging market currencies exhibit strength, with the significant exceptions being the Chinese yuan and the South Korean won. The inquiries posed by the Supreme Court justices during the appeal regarding the president’s effort to dismiss Federal Reserve Governor Cook appeared to reflect a degree of skepticism. A decision is improbable for a minimum of one month, and there exists the possibility that the matter may be referred back to a lower court to determine whether due process was afforded, rather than addressing the broader question of the Federal Reserve’s autonomy.

The recent high of the euro on Tuesday, just below $1.1770, probably signifies the near-term peak. It traded within Tuesday’s range yesterday and concluded at $1.1685. Today’s low stands at $1.1670. Options for 2.5 billion euros are set to expire today at a rate of $1.1700. Risk could extend to $1.1650, coinciding with the expiration of another set of options for 1.45 billion euros tomorrow. The greenback is exhibiting strength in its trading position relative to the yen. It approached nearly JPY158.90, marking the week’s peak. Thus far, this marks the first session in three during which the dollar maintains a position above the low established in the preceding session. A shelf has been established at JPY157.40. New highs were observed late in North America yesterday. There exists a preliminary possibility of reaching JPY158.70. In light of the prevailing concerns regarding JGBs and the potential for intervention, market participants may exhibit hesitance in driving the greenback beyond the JPY159 threshold prior to the results of the upcoming BOJ meeting. Options for 1 billion struck at JPY159 expire today.

Sterling encountered resistance near $1.3500 on Tuesday and subsequently retraced to approximately $1.3400 yesterday. It is maintaining its position today as well. It is advancing beyond $1.3450 in late European morning trading; however, the week’s peak appears to present significant resistance, potentially influenced by approximately GBP375 million in options set to expire today at $1.3495. A breach of the 1.3390 level aims for Monday’s low near 1.3330. This week’s labor market and inflation update has prompted the swaps market to edge closer to pricing in two rate cuts for the year. The Canadian Dollar reached a two-week peak yesterday but subsequently declined, indicating that a near-term high for the Loonie may have been established. The US dollar declined to approximately CAD1.3785 before rebounding to nearly CAD1.3835. The market is currently experiencing a period of consolidation within the CAD1.3815 to CAD1.3845 range. In the short term, the potential may reach CAD1.3870, and possibly CAD1.3900. Options valued at nearly $450 million at CAD1.3895 are set to expire tomorrow.

The Australian Dollar appreciated to approximately $0.6780 yesterday, marking its highest point since October 2024. The asset exhibited limited volatility during the North American afternoon, oscillating between $0.6755 and $0.6765. It has established a position above its upper Bollinger Band, currently situated around $0.6770. The robust employment figures and evolving anticipations regarding a potential interest rate increase in early February have propelled the Australian dollar to approximately $0.6810 today. Options priced at $0.6800, totaling over A$1 billion, are set to expire between Friday and Monday.