Before diving into the geopolitical shifts at Davos, we must look at the scoreboard. January was a rare unanimous month where every major currency gained significant ground against the USD. While the USD’s “benign neglect” provided the baseline, these specific factors amplified the moves:
- The Antipodean Alpha (AUD & NZD)
The Australian and New Zealand Dollars were the clear winners this month.
- AUD: Despite no formal meeting in January, the Reserve Bank of Australia (RBA) was forced into a hawkish corner by hot quarterly CPI data. This, combined with a fresh round of fiscal stimulus from Beijing, made the AUD the “reflation trade” of choice.
- NZD: Sentiment was bolstered by the ANZ Business Outlook, which revealed that despite high rates, pricing intentions remain stubbornly elevated, effectively killing off hopes for a dovish pivot from the RBNZ anytime soon.
- The “Silk Road” Sterling (GBP)
The Pound outperformed the Euro and CAD, largely on the back of Prime Minister Keir Starmer’s diplomatic offensive in Beijing. By signaling a “reset” in UK-China relations, Sterling caught a bid from investors looking for growth narratives independent of the U.S. tariff umbrella. Furthermore, BRC Shop Price Inflation data showed that the “last mile” of disinflation in the UK is proving difficult, keeping the Bank of England in a more restrictive stance than its G7 peers.
- The Managed Ascendance (JPY & CHF)
- JPY: The Yen’s performance was driven by the Bank of Japan’s (BoJ) January 22-23 meeting. While they held rates at 0.75%, the outlook was decidedly hawkish, confirming that the era of negative or near-zero rates is firmly in the rearview mirror. This was later bolstered by the Fed’s “rate check” on the BoJ’s behalf.
- CHF: The Swiss Franc remained the preferred destination for “Davos Anxiety.” SNB Chairman Schlegel maintained a steady hand, intervening only to smooth out the most aggressive spikes, allowing the CHF to retain its crown as the ultimate defensive play.
- The Divergent Neighbors (EUR & CAD)
- EUR: Interestingly, the Euro rose +0.85% as the ECB left rates unchanged. Accounts from the previous meeting released on January 22nd showed policymakers are in “no hurry” to change policy and appear comfortable with market bets for steady rates through 2026. This stability, coupled with the structural win of the landmark EU-India and India-Russia trade deals, provided a resilient floor for the single currency.
- CAD: The Loonie was the laggard of the group. While the Bank of Canada (BoC) held rates at 2.25% on January 28, Governor Tiff Macklem expressed concern over “trade-induced volatility.” The CAD struggled to decouple from the U.S. narrative as fears of retaliatory tariffs on Canadian exports weighed on the outlook.
January 2026 will be remembered as the month the “Middle Powers” officially declared their independence from the post-war financial order, and the USD, for a time, seemed content to let them go. It was a month characterized by the “Carney Manifesto” at Davos, a rare and aggressive “rate check” by the Federal Reserve, and a period of “benign neglect” from the White House that sent precious metals into the stratosphere.
However, just as the Greenback appeared to be in a terminal tailspin, a single personnel announcement, the nomination of Kevin Warsh as the next Fed Chair, snapped the market back to reality, triggering one of the most violent reversals in recent memory for gold and silver.
The World Economic Forum usually serves as a platform for globalist cooperation, but this year Mark Carney used it to deliver a eulogy for the old order. Carney’s speech was a searing critique of the current geopolitical landscape, urging nations to stop “living within the lie” of a system that no longer serves the collective good. He advocated for “Strategic Autonomy,” a call to action for middle-power nations to diversify their dependencies.
The response was immediate. We saw a coordinated “reset” of diplomatic and economic ties that bypassed the traditional Washington-centric route:
- The UK-China Reset: Following Canada’s lead from earlier in the month, UK Prime Minister Keir Starmer traveled to Beijing to “reset” the relationship, signaling that the UK is no longer willing to sacrifice trade for ideological alignment with the U.S.
- Eurozone-India & Russia-India Deals: The Eurozone finalized a landmark trade deal with India, while New Delhi simultaneously deepened its ties with Moscow. These “non-aligned” trade corridors are the physical manifestation of Carney’s Davos doctrine.
The market read this as a structural shift: if the world no longer needs the USD as its primary bridge, the long-term floor for the USD has just been lowered.
While the politicians were talking in Switzerland, the technocrats in Washington were making waves. On January 23, the market was jolted by reports that the Federal Reserve had conducted a “rate check” on the Yen. While rate checks are not unheard of, this one carried a stunning distinction: sources indicated the Fed explicitly stated it was acting on behalf of the U.S. Treasury.
This is a highly unusual and aggressive form of verbal intervention. It signaled a rare alignment between the Fed and the Treasury to cap USD strength. By checking rates on behalf of the Treasury, the Fed signaled that the U.S. was no longer passive about the Yen’s weakness. The signal to the FX desks was loud and clear: The U.S. wants a weaker USD. This was the “green light” the bears had been waiting for.
President Trump’s arrival at Davos only added fuel to the fire. Rather than soothing the concerns of the middle powers, he leaned into protectionism, announcing new tariffs as a direct retaliation to the burgeoning trade deals in Europe and Asia.
However, the real bombshell came when Trump was asked about the recent weakness in the USD, which had slid to levels not seen in about four years. Instead of expressing concern, he said the dollar’s value was “great” and brushed off worries about the decline, suggesting he was comfortable with current levels. In FX parlance, this is the return of “Benign Neglect”—a policy where the U.S. government allows its currency to slide to gain a competitive trade advantage.
The reaction was explosive. Between the “Bessent factor” (Scott Bessent’s influence on fiscal policy) and Trump’s comments, the market concluded that the U.S. has plenty of “agency” in setting the FX rate and is currently choosing a lower one.
- The Result: The USD plunged, and metals flew. Gold and Silver became the primary beneficiaries of this “Great Debasement” narrative. For a few weeks, the “Sell America” flow was the dominant trade on every macro desk.
By the final week of January, the USD was bleeding out, and silver was hitting decade highs. The market was positioned for a total collapse of the Greenback. Then, on January 30, the narrative shifted 180 degrees.
The announcement that Kevin Warsh would be nominated as the next Fed Chair acted as a tourniquet. Warsh is perceived by the market as a “hard money” advocate—someone who is likely to prioritize the Dollar’s stability and potentially pursue a more aggressive Quantitative Tightening (QT) path than his predecessor.
The “Warsh Rebound” was instantaneous. The USD didn’t just stop falling; it surged as short positions were squeezed. The impact on the “haven” assets was catastrophic:
- Silver and Gold: The metals market, which had been pricing in a permanent debasement of the USD, saw a massive liquidation. Silver, in particular, suffered “big damage,” as the speculative froth was blown off in a single afternoon.
- Market Sentiment: The Warsh nomination sent a message that while the President might be unconcerned about a weak USD, the new leadership at the Fed might not be so permissive.
Despite the late-month recovery in the USD, the underlying issues raised in the Japanese Bond (JGB) and British Gilt markets remain. These markets are behaving as barometers of fiscal instability. Chronic deficits in the West are the “foundations of a long journey” toward eventual debasement.
We may not be in a short-term monetary crisis yet, but the “slated Great Debasement” is the long-term path. January showed us that the journey will be volatile. The “Middle Powers” are building the lifeboats (trade deals and gold accumulation), while the U.S. is oscillating between wanting a weak USD for trade and a strong USD for global prestige.
As we move into February, the “Warsh Factor” will be the primary driver. The market will be hypersensitive to any comments from the nominee regarding the balance sheet and interest rates. However, we must navigate a significant contradiction. While the market bought the USD on the news of a “credible hawk,” we cannot forget that President Trump’s primary selection criterion is a candidate’s willingness to pursue lower interest rates.
January was a masterclass in how quickly geopolitical rhetoric can be upended by personnel and policy shifts. The “Middle Powers” may have found their voice, but as the month ended, the Federal Reserve reminded everyone who still holds the megaphone.