Respite for the Dollar Ahead of FOMC Announcement
January 28, 2026
Financial market watchers and participants are overwhelmingly convinced that the Federal Open Market Committee will leave its federal funds target at 3.50-3.75%. The announcement arrives at 14:00 EST and will be followed by Chairman Powell’s press conference beginning 30 minutes later. Fed forecasts do not get updated this time. After this FOMC meeting, there will be two more (scheduled for mid-March and end-April) before Powell’s chairmanship ends. President Trump is expected to reveal his choice for the next chairman very soon, and Powell has still not revealed whether he might stay on the FOMC as one of the six other Board Governors (his term as a governor isn’t scheduled to expire until January 2028, but he could step down sooner).
25-basis point interest rate cuts were done at the final three FOMC meetings of 2025, but December’s updated forecasts suggested a likelihood of one, maybe two, reductions in all of 2026 if the economy evolves as expected. The December meeting was characterized by an unusually diverse range of opinions with Miran favoring a larger 50-basis point cut but Goolsbee and Schmid dissenting in favor of leaving the interest rate target unchanged at 3.75-4.00%.
In contrast to losses earlier this week, the dollar recovered overnight by 0.5% against the Swiss franc, 0.4% relative to the euro, and 0.3% versus sterling but held steady against the Japanese yen. Published minutes from the Bank of Japan Board meeting on December 18-19 at which the short-term interest rate was hiked to a 30-year high of 0.75% revealed that concern over excessive yen weakness had been a key factor behind the interest rate hike at that time. Japan’s 10-year Japanese Government Bond yield is five basis points lower today than yesterday. Comparable sovereign debt yields in Germany, France, Italy and Spain have slipped two basis points each, while the 10-year U.S. Treasury and British gilt yields haven’t moved.
Precious metal prices are back in vogue, with silver surging 6.2% overnight and gold climbing 3.4%. West Texas Intermediate oil strengthened 0.5%, while Bitcoin’s price is up 0.8%.
European stock markets have experienced a difficult Wednesday session so far, with losses of somewhat over 1.0% in France, Italy and Spain. In contrast, share prices jumped 7.4% in Indonesia, 2.6% in Hong Kong and 1.5% in Taiwan. The Japanese Nikkei hardly moved. Nasdaq futures are 0.7% higher, but other key U.S. indices show insignificant moves prior to the opening bell.
At a scheduled policy review, officials at the Central Bank of Sri Lanka today left their overnight policy interest rate unchanged at 7.75%. That level is half the peak of 15.50% briefly reached in March-May of 2023 and has been now maintained since a 25-basis point cut last May. Monetary authorities target inflation at 5%. Inflation crested at 67.4% in September 2023, fell to as low as -4.2% by February 2025 and ended last year with readings of 2.1% in both November and December. According to a released statement after today’s decision,
- Inflation expectations appear to be well anchored around the inflation target.
- Core inflation is expected to accelerate further as demand in the economy strengthens, and
- The Board is of the view that the current monetary policy stance will support steering inflation towards the target of 5%.
The Bank of Canada is also holding a policy review today, and like the Fed, unlikely to change its interest rate.
Australian consumer price inflation, which is now being reported monthly rather than quarterly, printed at 3.8% in December, a tad up from November.
Malaysian producer prices fell in December by 0.2% from November and 2.7% year-on-year, which constitutes the most deflationary reading in seven months.
December producer price inflation in Slovenia matched November’s 2-month low of 1.1%.
Slovakian PPI inflation of -0.3% moved below zero percent in December for the first time since last June.
Industrial production in India recorded the largest 12-month rate of increase (+7.8% in December) in 26 months.
Although at a 3-month high, consumer confidence in Germany remained quite weak this month with a reading of -24.1 versus a 21-month low of -28.4 two months earlier. Italian consumer confidence edged up by 0.2 points to a 3-month high as well.
The Austrian manufacturers purchasing managers index stayed below the 50 neutral level in January and reflected a sharper contraction of activity with a 7-month low reading of 47.2.
Tensions of Greenland this month adversely affected financial market sentiment regarding the Swiss economy as attested by a 3-month low in the ZEW Institute index. The reading of -4.7 in January followed +6.2 in December and +12.2 in November.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: Australian CPI inflation, Central Bank of Sri Lanka, FOMC announcement later today, German and Italian consumer confidence
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