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EUR/GBP reversed and fell sharply after recovery to 0.8744 earlier in the week. The rejection by 55 D EMA (now at 0.8715) keeps fall from 0.8863 intact. Initial bias is back on the downside this week for 0.8631 cluster support (38.2% retracement of 0.8221 to 0.8663 at 0.8618). Decisive break there will carry larger bearish implications and pave the way to 61.8% retracement at 0.8466. Risk will now stay on the downside as long as 0.8744 resistance holds, in case of recovery.

In the bigger picture, rise from 0.8221 medium term bottom (2024 low) is seen as a corrective move. Upside should be limited by 61.8% retracement of 0.9267 to 0.8221 at 0.8867. Sustained trading below 55 W EMA (now at 0.8623) should confirm that this corrective bounce has completed. In this case, deeper fall would be seen back to 0.8201/21 key support zone. However, decisive break of 0.8867 will suggest that EUR/GBP is already reversing whole decline from 0.9267 (2022 high). That should pave the way back to 0.9267.

In the long term picture, price action from 0.9499 (2020 high) is seen as part of the long term range pattern from 0.9799 (2008 high). Range trading should continue between 0.8201 and 0.9499, until there is clear signal of imminent breakout.

EUR/AUD's decline from 1.8160 resumed through 1.7287 support last week. The fall is seen as the third leg of the pattern from 1.8554. Initial bias stays on the downside this week for 100% projection of 1.8554 to 1.7245 from 1.8160 at 1.6851. On the upside, above 1.7287 support turned resistance will turn intraday bias neutral first, and bring consolidations, before staging another decline.

In the bigger picture, the break of 55 W EMA (now at 1.7464) argues that fall from 1.8554 medium term top is correcting whole up trend from 1.4281 (2022 low). Deeper decline is in favor to 38.2% retracement of 1.4281 to 1.8554 at 1.6922, and possibly below. Risk will stay on the downside as long as 55 D EMA (now at 1.7537) holds, in case of strong rebound.

In the longer term picture, rise from 1.4281 is seen as the second leg of the pattern from 1.9799 (2020 high), which is part of the pattern from 2.1127 (2008 high). As long as 55 M EMA (now at 1.6610) holds, this second leg could still extend higher.

EUR/CHF's fall from 0.9394 extended lower last week. Despite interim recovery, the move accelerated through near term channel support towards the end of the week. The development confirms that whole rebound from 0.9178 has already completed. Initial bias is now on the downside this week for retesting 0.9178 low first. Firm break there will resume larger down trend. On the upside, above 0.9253 support turned resistance will turn intraday bias neutral and bring consolidations, before staging another decline.

In the bigger picture, another rejection by 55 W EMA (now at 0.9360) keeps outlook bearish. Downtrend from 1.2004 (2018 high) is still in progress. Firm break of 0.9178 will target 61.8% projection of 1.1149 to 0.9407 from 0.9928 0.8851. Outlook will stay bearish as long as 0.9394 resistance holds, in case of recovery.

In the long term picture, overall long term down trend from 1.2004 (2018 high) is still in progress. Outlook will continue to stay bearish as long as falling 55 M EMA (now at 0.9763) holds.

Summary

Although the U.S. administration has walked back its proposed tariff package on major European economies, the episode still marks a significant escalation in transatlantic tension. The direct macro impact from this in the immediate term may have been removed, but the strategic fallout is unchanged—the episode exposed deep mistrust, elevated the prominence of the EU’s Anti‑Coercion Instrument (ACI), and brought into deeper focus the fragility of the U.S.–European relationship.

What follows are thoughts around U.S. economic vulnerabilities had the EU deployed the ACI, but also how the Greenland dispute gives new momentum to a world that may be drifting apart. Rather than a simple U.S.–China split, a three‑bloc system where Europe charts more distance from both the U.S. and China could now be more realistic. Our analysis shows that three-bloc fragmentation carries heavier growth costs for Europe if access to U.S. and China‑aligned markets tighten simultaneously. And while the EU is exploring new trade partnerships and an economy less dependent on the U.S., the simple truth is that replacing the U.S. consumer is nearly impossible. So even if the EU charts new trade paths and explores deeper integration into the global marketplace without the U.S., a world where the U.S. and EU are less economically integrated raises new headwinds to global growth.

Europe’s Reaction: The Anti-Coercion Instrument (ACI) Threat

At the center of Europe’s retaliatory response would have been the Anti‑Coercion Instrument (ACI)—the EU’s economic “bazooka,” created to deter and counter foreign coercion. The ACI allows the EU to deploy measures including:

• Foreign investment restrictions
• Public procurement bans
• Suspension of intellectual property rights
• Tariffs, quotas, and service restrictions

Initially conceived during Trump’s first term and formalized after China’s coercion of Lithuania, the ACI has never been used. But President Macron of France has advocated its activation before—including against China—making his push to deploy the ACI well within his established playbook. The urgency for the ACI's use has abated, but had the ACI been deployed, the U.S. economy has vulnerabilities.

Specifically that:

• The EU accounts for ~20% of U.S. goods exports, making the EU America’s largest high‑income market
• U.S.–EU goods trade totals ~$970 billion annually, including a $237B U.S. goods deficit
• The U.S. maintains an $89B services surplus with Europe—vulnerable if IP or professional services are targeted

Implementation, however, would have been slow: the ACI requires a multi‑stage process (examination→determination→ engagement→ response measures) that could take months to complete. A slow-moving "bazooza" retaliation option would at least provide a several-month window for cooler heads to prevail and de‑escalation to materialize.

But, focusing solely on trade volumes would understate the more strategic U.S. vulnerability. ACI measures that target intellectual property present risks that macro models do not capture. For AI, biotech, advanced manufacturing, and cloud services—sectors central to U.S. competitive advantage—EU imposed restrictions on U.S. IP could become the true economic impact of the ACI.

Had the EU pulled the ACI trigger a harsher geopolitical question would have loomed: Is the EU prepared to depend less on the U.S. in critical technologies? Before the Greenland episode, the idea was unthinkable. Now, several European officials are openly raising the prospect.

Retrench or Reglobalize? Are Greenland Tensions An Inflection Point For The EU?

The brief escalation—despite its abrupt reversal—serves as a stress test of global alignment. Greenland‑linked tariff threats didn't just raise economic risks in the U.S. as well as Europe—they reopened a broader question we’ve been tracking for years: whether the global economy is drifting toward deeper fragmentation. What looked like a stable U.S.–EU strategic alignment now appears more conditional, and the Greenland episode pulls forward scenarios we once considered tail risks.

De-globalization has been steadily moving from a concept to a reality. The latest U.S.–EU confrontation makes a fractured three bloc world: U.S., China, EU, less abstract. If Europe retrenches from both Washington and Beijing, global growth headwinds steepen. Simulations we’ve run show that fracturing into three insulated blocs inflicts meaningfully more damage on global output than if the world carved into only U.S. and China-led blocs. And the pain is not symmetric: the EU shoulders the largest proportional hit if it loses access to U.S. and China aligned markets simultaneously.

However, another possibility exists. Rather than retrench, Europe uses this episode to deepen integration with the rest of the world, but while still keeping Washington at arm's length. The EU-Mercosur trade agreement, a major free trade deal between the EU and select South American nations, was finally signed in January 2026. While impediments to full ratification remain, EU member states seeking friction-less trade avenues to South America is behavior that demonstrates the EU is seeking greater global economic integration. Combining the Mercosur trade deal with overtures to India and a thaw with China on EV trade shows the EU already widening its aperture.

But even in a world where the EU successfully achieves more global integration, severing trade ties with the U.S. has limits. The U.S. consumer is irreplaceable without leaning into China—something Europe has been reluctant to do. And Europe knows U.S. policy can be episodic. The Trump administration has already demonstrated a transactional approach to setting trade and foreign policy. Not to mention a willingness to tread more softly if financial markets become unsettled due to policy proposals. Pursuing structural divorce from the U.S. over what could prove to be temporary tariff and foreign policy is a heavy lift for the Europeans, and a shift that could wind up causing more economic harm than help for the EU.

Even with the de-escalation, Greenland may not just be a bilateral flare-up. It's a potential catalyst with scope to reveal just how fragile the global architecture is, or whether a willingness to strive for new paths of economic cooperation can gather momentum. Whether the EU doubles down on a break from the U.S. and China or pursues a world where the importance of the U.S. is reduced, the direction of travel is the same: fragmentation. Reducing trade integration with the U.S. is unlikely to be fully offset by new trade relationships, and reduced EU-U.S. trade is a dynamic that places downward pressure on global growth.

• Discover our Weekly Market Outlook, exploring themes and events that forged financial flows throughout the week.
• This week was forged by renewed geopolitical tensions (EU-US, Greenland, Davos) and although it's easing, the tension is not going down.
• Get ready for next week's action by exploring upcoming events across global Markets.

Week in review – Geopolitical turmoil pursues

Another week, another spectacular Trump-related volatility event.

After threats to the Fed Chair Powell and the Capture of the Venezuelan President, President Trump wanted some more spice.

And the spice he gave: Over the weekend, the President threatened many European Nations and leaders with additional tariffs until the US can buy Greenland – a striking demand right as the World Economic Conference was commencing in Davos.

The event featured many references and speeches toward a New World Order, one characterized by greater powers (China, US, Russia) expanding their grip. In contrast, others unite – the end of the Rules-Based order of the past 25 years.

The best speech is easily Canadian PM Mark Carney's, which suits the current geopolitical landscape perfectly—a must-watch.

Luckily for the world as we know it (or at least NATO as we know it), Trump backed off his rhetoric and cancelled tariffs that would have been implemented on February 1 – the tone has largely abated since, even if some worries remain.

The higher tensions did not come without a bit of Market Volatility – Stock Markets across the world suffered losses from 1% to 3% as investor sentiment degraded.

After all, the Venezuela Capture opened possibilities that would scare anybody: Threats are not all threats; they can turn into harsh realities.

Luckily, Trump offered yet another TACO to Wall Street, and they ate at their satiety. Stock Markets are closing the week way closer to their all-time highs.

The late session is offering some profit-taking, but Equity benchmarks have recovered most of the correction.

Weekly Performance across Asset Classes

Weekly Asset Performance – January 16, 2026 – Source: TradingView

Metals have shone brightly throughout the week, all gapping higher at the weekly open and extending to continuous record highs as the week progressed.

Even Trump's latest TACO didn't scare Gold and Silver bulls, who have brought the precious metals to, or very close to, their following milestones ($100 for XAG/USD and very close to $5,000 for Gold).

Except for Stocks, which have remained resilient throughout the chaos, the US Dollar took a gigantic hit as Trump's latest show was not well received by participants. The Dollar Index is down 2% on the week and not showing any signs of slowing its descent.

Natural Gas was also a high performer, squeezing amid the Coldest week in North America, supply bottleneck fears over EU-US Beef, and other factors (which I invite you to check in our recent in-depth analysis).

The energy commodity went up by about 70% in the span of a week, in a move that traders haven't seen in a while.

Natural Gas (ETF) 1H Chart – January 23, 2026 – Source: TradingView

Next week shouldn't be much less volatile – Some weekend angst regarding Iran and a general tense atmosphere is raising the temperature. Particularly as the FOMC approaches and Trump prepares to announce the next Federal Reserve Chair.

The Week Ahead – January FOMC/BoC Meetings, the next Fed Chair and more tension

Asia Pacific Markets – Australian and Japanese Inflation

Next week should be (relatively) calmer for APAC traders, nevertheless, one can never be too innocent as assets and currencies fly up and down.

The Aussie Dollar will be in front of the scene, leading G7 FX Currencies in a fast-paced run throughout the week.

AUD got boosted by a hot-economy, strong jobs and persistent inflation. About the latter, the Australian CPI will be closely monitored on Tuesday evening (19:30 ET).

On the other side of the performance spectrum, the Yen was hurting throughout the entire week before the Ministry of Finance of Japan ran a rate check (Calling banks to know Market rates – a diplomatic move to show that they are watching ongoing developments and usually precede actual interventions.)

USD/JPY quickly took a turn lower, going from 159.20 to the current 155.00 in a stellar drop – this would somewhat help the JPY after a disastrous performance.

USD/JPY 1H Chart, January 23, 2026 – Source: TradingView

Traders will learn more on inflation trajectory (and rate hike expectations) next week with the Tokyo CPI, releasing on Thursday evening (18:30).

Apart from these key events, keep an eye on NZD trade data on Wednesday and the Chinese NBS PMIs on Friday evening.

Europe and UK Markets – Inflation Expectations, GDP and speeches

Next week will be a calmer one for Europe after a high-intensity WEF.

Inflation and Business expectations will be published throughout the week for Switzerland and the Eurozone.

To accompany the releases, Friday should be quite active with GDP releases for many EU nations including France, Germany, and preliminary GDP data for the Eurozone.

In between GDP releases, keep an eye on Unemployment Rate data and CPI for Germany.

North American Markets – FOMC Meeting and Bank of Canada

Traders attention will be focusing right back to North America, particularly looking at recent Trump rhetoric and upcoming events.

Releases will provide some views on economic data, with B-tier releases spanning from Durable Goods to Housing Price Indexes and more.

Of course, keep a close eye on the PPI data releasing on Friday morning, only high-tier data of the week (8:30 A.M.)

The Bank of Canada will begin the celebrations on Wednesday morning (9:45 A.M.) with their rate decision, which should be a non-event but looking at recent volatility, it will be very interesting to see how Governor Macklem tackles the situation.

Loonie traders should also pay attention to Canadian GDP on Friday morning.

Not much later on Wednesday (14:30), the classic FOMC will be taking Markets by its hands – Waiting for the event could either be a long, slow walk or a high-paced seesaw adventure depending on what happens over the week.

Of course, keep a very close eye on any announcements regarding the Next Fed Chair as the decision could be released anytime and it will be market-moving!

And as always these days, keep news in check – things could be heating up in Iran with the latest ammassing of military assets in the Middle East.

Latest News regarding Iran – Source: X, Iran International

Next Week's High Tier Economic Events

For all market-moving economic releases and events, see the MarketPulse Economic Calendar. (High-tier data only)

Safe Trades and enjoy your weekend!

Monday, Jan 26, 2026

Tuesday, Jan 27, 2026

Wednesday, Jan 28, 2026

Thursday, Jan 29, 2026

Friday, Jan 30, 2026

• The US dollar recorded its weakest week since May, falling 1.5% on Dollar Index, driven mainly by political uncertainty rather than shifts in monetary policy or bond yields.
• Erratic policy signals from President Donald Trump have increased investor caution, triggering a move into safe-haven currencies such as the Japanese yen and the Swiss franc, while pressuring the dollar broadly.
• With the Federal Reserve in focus and concerns growing over its future independence, markets are increasingly pricing in further downside risks for the dollar

The US dollar is posting its weakest week since May, losing ground against most major currencies. Dollar Index (DXY) fell by more than 0.5% on Friday and is down 1.6% for the week, marking its worst performance in over eight months. Importantly, the current weakness of the dollar is not the result of a sharp shift in monetary policy expectations, but rather a surge in political uncertainty in the United States.

Dollar Index (DXY), weekly timeframe, source: TradingView

Trump as the main source of uncertainty

The key factor weighing on the dollar is the unpredictable and often contradictory policy stance of Donald Trump. Investors were unsettled by threats of tariffs against Europe linked to disputes over Greenland, followed by a rapid retreat from a confrontational tone after an agreement with NATO Secretary General Mark Rutte during the World Economic Forum in Davos. At the same time, US Treasury yields have remained relatively stable, reinforcing the view that political risk, rather than monetary factors, is currently the dominant force shaping the dollar. Right now the dollar has become a safety valve for US risk.

Flight to safe-haven currencies

The global foreign exchange reaction underscores rising aversion to US-related risk. The Japanese yen strengthened by more than 1%, moving to around 156.14 per dollar. The move accelerated following a press conference by Kazuo Ueda, head of the Bank of Japan, and during periods of low liquidity in Europe.

Daily Timeframe of USDJPY, source: TradingView

Additional uncertainty was introduced by comments from Japan’s finance minister Satsuki Katayama, who neither confirmed nor denied possible currency intervention. Meanwhile, the Swiss franc reached its strongest level since September, and the Canadian dollar recorded its best day since December, highlighting the broad-based pressure on the US currency.

Daily timeframe of USDCHF, source: TradingView

The Fed in the spotlight

Another source of volatility is the upcoming meeting of the Federal Reserve. Markets are pricing in one rate cut around mid-year and the possibility of another in 2026. The dollar is also burdened by concerns over potential threats to the Fed’s independence and fears that a successor to Jerome Powell could move more quickly to ease policy under political pressure.

Fed Watchtool Conditional Meeting Probabilities, source: cmegroup.com

Downside Pressure on the Dollar May Persist

The current weakness of the dollar stems primarily from political turmoil and rising institutional uncertainty rather than deteriorating US economic fundamentals. As long as these factors remain in play, downward pressure on the US currency is likely to persist, especially against traditional safe-haven currencies.

Canadian Highlights

• The Bank of Canada’s business and consumer sentiment surveys continued to point to subdued moods amid economic uncertainty.
• Cooling core inflation metrics in December 2025 were likely well received by policymakers, even with an acceleration in overall inflation.
• Even with the headwind of uncertainty, Canadian consumer spending is holding up, with November retail trade volumes up 1% month-on-month.

U.S. Highlights

• Financial markets declined sharply on rising trade and geopolitical tensions but clawed earlier losses as cooler heads prevailed at the World Economic Forum in Davos.
• Consumer resilience carried into the fourth quarter, despite around 650,000 federal workers being furloughed without pay throughout the six-week long government shutdown.
• Core PCE inflation rose to 2.8% year-over-year in November, a light acceleration form 2.7% in October.

Canada – Transatlantic Tensions Unsettle Markets

For financial markets this week, an appropriate statement may have been “what a year this week was”. The TSX, for instance, plunged early in the week on tensions between Europe and the U.S. over Greenland. It then staged a relief rally, more-than-fully recouping those losses after President Trump eased fears of military action in the region and a renewed trade war with Europe. Canadian bond yields were also volatile, flaring higher alongside the spike in Japanese bond yields and geopolitical tensions, before pulling back a touch, as cooler heads prevailed on the Greenland issue.

These events reinforced that Canada continues to deal in an uncertain economic backdrop, and this will likely be a factor restraining economic activity in 2026. This uneasiness has certainly been weighing on consumer and business moods, and we received fresh evidence of this impact this week with the latest Bank of Canada surveys on business and consumer confidence. Although showing some improvement relative to early 2025, business sentiment continues to be “subdued” (Chart 1). The uncertainty caused by the trade war continues to weigh on investment intentions, consistent with the pullback that we are seeing in the hard data. Consumers are also concerned about trade uncertainty, though actual spending remains decent. This week’s retail spending report showed a healthy 1% monthly gain in volumes. And, although retail sales are tracking flat for Q4 overall, we see some upside risk to our fourth quarter consumption forecast, on the back of stronger services spending.

High prices were also a top concern for consumers in the Bank’s latest survey. However, there was some good news on this front this week. The Bank’s preferred core inflation metrics cooled in December (Chart 2), with the 3-month annualized percent change for the CPI-trim and CPI-median both ducking under 2%. What’s more, the share of items whose prices grew at 3% or more dropped (when measured on the same basis) - signaling a narrowing breadth of inflation across categories. However, the report wasn’t a complete slam dunk, as overall inflation increased by more than expected on the back of stronger food prices.

Tying these threads together, this week painted a picture of a soft underlying Canadian economy with moderating inflation pressures that still faces significant uncertainty. While this was enough for markets to slightly pare back their expectations of a rate hike later this year, we don’t think it was enough to meaningfully shift the policy dial. The Bank has repeatedly said that they are happy with the current policy stance, provided the economy evolves broadly in line with expectations. And, at 2.8%, core inflation landed almost bang-on the Bank’s expectation for 2025Q4. Indeed, it would take a significant undershooting of economic growth or meaningful softening in the labour market to force policymakers off the sidelines.

U.S. – Davos De-escalation Supports Market Recovery

Financial markets experienced considerable volatility this week amid resurgent geopolitical and trade frictions. President Trump ramped up the pressure to ‘acquire’ Greenland ahead of the annual World Economic Forum in Davos. He announced tariffs on eight European countries that resisted these efforts. This set into motion retaliatory efforts, with the EU suspending the ratification of the U.S.-EU trade agreement. Global financial markets fell sharply, as did the trade-weighted U.S. dollar and Treasury prices. Relief emerged during the Davos meetings. During his speech, President Trump ruled out military action on Greenland. He subsequently announced that a “framework on a future deal” had been reached and dropped earlier tariff threats. Markets responded strongly, with the S&P 500 recovering nearly all its intra-week declines.

Stepping back from market swings, the episode reveals deeper geopolitical and economic implications. While tensions have eased, significant uncertainties remain. Details on the proposed framework on Greenland are limited, appearing to center on mineral rights extraction and potential integration into the planned Golden Dome missile defense system. Denmark and its allies firmly oppose any outcome that compromises territorial sovereignty, raising the risk of future bouts of escalation. Additionally, this week’s events bring into question the stability of the trade deals that have been negotiated thus far. The sudden announcement of tariff threats undermined recently negotiated agreements with the U.K. and the EU, chipping away at the predictability these pacts were meant to secure. Such policy volatility undermines business and investor confidence, which underpins forecasts for improved U.S. growth in 2026.

A light U.S. economic data calendar took a backseat to Greenland developments, yet the released figures highlighted resilience. The first revision to third-quarter GDP lifted annualized growth to 4.4% from 4.3%, reflecting upward adjustments in exports and business fixed investment. Consumer spending remained unchanged at 3.5%, but the trend in the fourth quarter appeared to remain healthy. The delayed October and November PCE reports pointed to greater household endurance through the extended government shutdown than initially anticipated (Chart 1). This recent data brings our tracking for consumption in the fourth quarter to 3% – stronger than previously expected. Inflation, however, tempered the positive tone. Core PCE inflation – the Fed’s preferred inflation gauge – rose to 2.8% year-over-year in November from 2.7% in October, remaining firmly above the 2% target (Chart 2).

Overall, the U.S. economy enters 2026 on firmer ground than previously expected, bolstered by upward growth revisions and a resilient consumer. Yet this week’s swift escalation and de-escalation raise a fundamental question: can trade agreements be considered truly settled when they remain vulnerable to unilateral changes? Trade frictions – previously expected to fade and support growth – may persist longer than anticipated, with this week’s events a clear reminder of that.

Summary

United States: Economic Growth Sturdy Ahead of the January FOMC

• Davos delivered news of cooling trade tensions thanks to a deal for the U.S. to gain greater access to Greenland. Meanwhile, solid consumer spending during October and November despite slower income growth suggests economic growth remains on a positive trajectory.
• Next week: Durable Goods (Mon.), FOMC Meeting (Wed.), Trade Balance (Thu.)

International: Cross-Currents Emerge in China's Economy

• December activity put a brighter spotlight on how sluggish consumer activity has been, yet industrial production and manufacturing remain resilient across China’s economy. As these cross-currents persist and authorities offer little in terms of policy support, we expect the Chinese economy to soften relative to last year and for growth prospects to dwindle over time.
• Next week: Bank of Canada Policy Rate (Wed.), Brazil Selic Rate (Wed.), Central Bank of Colombia Rate (Fri.)

• We expect the Federal Reserve to maintain its monetary policy unchanged next week, in line with broad consensus and market pricing.
• The Fed will not publish updated projections, so the focus is strictly on Powell's remarks. We do not expect new guidance on the reserve management purchases or other balance sheet considerations.
• We maintain our forecast for two more Fed cuts, in March and June, slightly ahead of market pricing. We continue to expect steeper UST yield curve and higher EUR/USD over the course of 2026.

Despite the recent geopolitical volatility, the Fed's January decision looks like a fairly clear-cut case. Powell communicated well in advance that unless warranted by significant macro surprises (which we have not seen), the Fed would be taking a pause in its rate cutting cycle in January - and we have no reason to doubt that.

In our view, the Fed has room for cutting rates later in H1 due to the ongoing cooling in labour market balance. The ratio of job openings to the number of unemployed fell to 0.92 in November - the weakest level since March 2021. The cooling has weighed on workers' bargaining power, which is clearly visible in job switchers earning no higher salary increases than those staying in their jobs. Inflation pressures from firms' unit labour cost have eased significantly, and instead, higher unemployment and weaker wage growth could pose downside risks to growth forecasts.

We still forecast a solid 1.8% increase in real GDP for 2026 in comparable Q4/Q4 basis (the Fed's Dec median projection: 2.3%, Reuters Dec consensus: 2.2%). But even so, we think the balance of risks favours continuing the cuts sooner rather than later. The latest comments from FOMC participants remain highly divided in their risk assessment. Bowman (voter) said that she remains 'concerned about labour market fragility' and that firms could start 'shedding workers unless there is a demand improvement'. On the other hand, last year's most hawkish voter, Jeffrey Schmid (non-voter in 2026), warned that the Fed has 'no room to be complacent on inflation'.

Market pricing, which also signals 1-2 rate cuts but only from summer onwards, could naturally reflect the new Fed chair starting in May. But with regional Fed nominations already confirmed, and the risk of Supreme Court allowing Trump to fire Lisa Cook declining after this week's hearing (see WSJ), we do not expect the upcoming nomination(s) to have a significant impact on the balance of power in the committee.

In our view, the voter rotation for 2026 can still have a marginally hawkish impact with Beth Hammack, Neel Kashkari and Lorie Logan now entering as new voters. We do not expect the Fed to announce new changes to its liquidity policies after the front-loaded reserve management purchases have calmed down US money market rates. We expect the Fed to continue T-bill purchases at a pace of USD40-50bn/month until April, after which the pace will be slowed down substantially.