Ahead Today
G3: Fed’s Barkin speech, France CPI
Asia: RBA policy decision, HK retail sales
Market Highlights
US macro data has delivered a strong upside surprise, with the ISM manufacturing index jumping to 52.6 in January, its fastest pace since 2022, driven by a sharp rebound in new orders. Together with the S&P Global PMI firming to 52.4 from 51.9, the data point to an incipient recovery in the US manufacturing cycle. The USD has extended gains on the back of the stronger macro pulse and continues to hold above key support levels, with EURUSD rejecting the 1.2000 handle for now and growth differentials tilting back in favour of the US. The yen has weakened, and we think it will continue to trade with two-way risks: uncertainty around the 8 February elections and PM Takaichi’s fiscal stance on one side, and the possibility of FX intervention if USDJPY accelerates higher on the other.
Separately, Donald Trump unveiled a US$12bn strategic “critical mineral reserve” (Project Vault), aimed at creating an industrial buffer of key materials such as rare earths, gallium and cobalt. The initiative, funded through Ex-Im Bank financing and private capital, signals a renewed push for supply chain resilience and a reduced reliance on China dominant processing and rare earth supplies. While this industrial policy may not immediately be market moving for FX, it could reinforce longer term themes around US reshoring, capital flows, and the evolving structural backdrop that could shape the medium-term USD narrative and its standing as a reserve currency. That said, US fiscal sustainability remains a key macro consideration to monitor.
Regional FX
A significant shift in US-India trade policy has introduced a new geopolitical and macroeconomic dimension to Asia FX markets, arriving just as the Indian rupee is facing depreciation pressures. The newly announced US-India trade deal marks a notable easing of bilateral tariff tensions and represents a meaningful recalibration after months of strained trade relations. Washington will reduce tariffs on Indian goods to 18%, a substantial drop from rates as high as 50%. This includes lowering the 25% reciprocal tariffs to 18% and removing a punitive 25% tariff tied to India’s import of Russian oil. India has reportedly committed to halt purchases of Russian crude. iShares India 50 ETF rose following the announcement, while offshore rupee strengthened against the US dollar, reflecting investor relief that a key overhang on Indian exports has been lifted.
From a macro perspective, the INR’s recent weakness has been driven by tepid portfolio inflows and current account concern. The trade deal does offer medium term positives for India through improved export competitiveness and reduced tariff uncertainty. However, the shift in energy procurement away from discounted Russian crude introduces challenges to import costs.
