On January 28, as heightened political instability in the United States triggered a market rush towards bearish hedging, dollar traders are placing bets on a deeper decline in the currency at record costs. The premium for short-term options that profit from a weaker dollar has expanded to its highest level since data became available in 2011. The bearish sentiment is not confined to the short end—investor pessimism regarding the dollar's long-term prospects has reached its most pronounced level since at least May 2025. Although the dollar index registered a slight gain on Tuesday, its losses over the preceding three consecutive trading sessions were the steepest since the tariff turmoil last April. Should the decline resume as suggested by option prices, the dollar could fall to its lowest level in four years. Jesper Fjarstedt, a senior analyst at Danske Bank, commented, "The unpredictable U.S. political situation is undoubtedly negative for the dollar. Developments over the past week have prompted the market to reprice political risk premiums."
Furthermore, on the local date of January 27, while attending an economic policy-related event in Iowa, U.S. President Donald Trump told media in an interview that he was not concerned about a significant depreciation of the dollar, stating the currency was "performing well" and suggesting it was reasonable for exchange rates to return to "the level they should be." When asked if he was worried about dollar weakness, Trump responded, "No, I think the dollar is doing quite well. I want it to return to the level it should be, that's a reasonable approach." He also hinted at his ability to influence the dollar's trajectory, claiming, "I can make it go up and down like a yo-yo."
Key data to watch today includes Germany's Gfk Consumer Confidence Index for February and the final U.S. Wholesale Inventories month-on-month figure for September. Additionally, the Bank of Canada's interest rate decision and Monetary Policy Report in the evening, followed by the Federal Reserve's interest rate decision early the next day, require close attention.
USD Index The USD Index fell sharply yesterday, breaching the 96.00 level and approaching a 4-year low, with the current exchange rate hovering around 96.10. In addition to sustained pressure from ongoing trade tensions, concerns that the U.S. government might face another shutdown also contributed to the selling pressure. Moreover, public remarks from President Trump expressing a lack of concern about dollar weakness further weighed on the currency. Today, focus is on resistance near 96.50, with support located around 95.50.
EUR/USD The Euro rose significantly yesterday, breaking through the 1.2000 level, with the current exchange rate trading around 1.2010. The primary driver supporting the Euro's ascent was the USD Index falling below 96.00, pressured by a combination of negative factors including U.S. government shutdown worries and President Trump's recent comments. Additionally, after breaking above the resistance at the 1.1900 level, the Euro attracted some technical buying interest, which amplified its gains. Today, attention is on resistance near 1.2100, with support found around 1.1900.
GBP/USD The British Pound advanced substantially yesterday, surpassing the 1.3800 level, with the current exchange rate trading around 1.3800. The main factor underpinning the Pound's rise was the USD Index's decline towards a 4-year low, under pressure from multiple adverse factors. Furthermore, recently robust UK economic data and market expectations that the Bank of England is in no hurry to cut interest rates also provided some support for the Sterling. Today, focus is on resistance near 1.3900, with support located around 1.3700.
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