Trump, Central Bank News & Plenty of Data Vying for Investors’ Attention – Currency Thoughts
Trump, Central Bank News & Plenty of Data Vying for Investors’ Attention
January 22, 2026
President Trump presented a much more compromising stance on Greenland at Davos than he had laid out prior to attending the conference. The resulting shift back into riskier assets that began yesterday carried into this Thursday’s session.
On the central banking front, policy interest rates at the Bank of Norway and Bank Negara Malaysia were left unchanged at 4.0% and 2.75%, both as expected, while the key Central Bank of Turkey interest rate has been sliced by a smaller-than-predicted 100 basis points to 37.0%. Minutes from the December European Central Bank Governing Council meeting, known as the ECB Account, read more dovishly than anticipated, with a passage expressing some concern about the possibility of sub-target inflation putting unwelcome downward pressure on inflation expectations in the future. While the next rate change seems more likely to be up than down, that moment remains far into the future.
Given the Governing Council’s medium-term orientation, which allowed moderate, short-term deviations of inflation from the target, and given that the expected deviation was likely to be temporary since much of it was attributable to energy prices, the current market pricing of interest rates was seen as consistent with the latest fixings and in line with the Governing Council’s reaction function. Still, this was an issue that warranted further reflection.
Today’s menu of data features prominent U.S. items like personal income & spending, the PCE price deflator, the final 3Q GDP numbers, and weekly jobless claims and were preceded by quite a few statistical releases from other economies. In overnight financial market action prior to the U.S. numbers,
- The dollar had risen 0.3% against the yen but fallen somewhat against most other major currencies.
- 10-year sovereign debt yields had fallen four basis points in Japan and France, three bps in Italy, 2 bps in Spain and a basis point in Germany but climbed by a basis point in the United States case and two bps in Great Britain.
- Stock markets in the Pac Rim closed up 1.7% in Japan, 1.6% in Taiwan, 1.0% in South korea, and 0.8% in Australia, while Euroland bourses in Germany, France and Spain had already gained over 1.0%. U.S. futures were in the win column, too.
- The price of WTI oil had retreated 1.8%, and gold and silver also retreated some more. Bitcoin recovered 0.6% further but remain a tad below $90,000.
U.S. data reported at 08:30 EST failed to promote the view that the Federal Reserve has been cutting rates too slowly and that its current stance is inappropriately too tight.
- New U.S. jobless insurance claims remain historically low, falling by 12k last week to a mere 200k. The four-week moving average was only 201.5k, which is not even close to any semblance of an economy in danger of tipping into recession.
- Real GDP growth last summer got revised slightly higher to an 8-quarter high of 4.4% at an annualized rate and was a solid 2.3% higher than the year-earlier level.
- The quarterly rise of the total PCE price deflator expressed at an annualized rate accelerated from 2.1% in the second quarter to 2.8% in 3Q and was associated with a year-on-year rise of 2.9%, most in three quarters. The core PCE price deflator accelerated to 2.9% versus 2Q and a 5-quarter year-on-year high of 2.7%.
Consumer confidence this month was reported for several countries. In Denmark, which owns Greenland, sentiment printed below zero for a 50th straight time but, at -13.4, to the least extent from the threshold in ten months. Turkish consumer sentiment edged 0.2 points above December’s 5-month low of 83.7 but is closer to the high of 91.1 in May 2023 than the low of 63.4 clocked in June 2022. Dutch consumer confidence slipped two index points to a 3-month low of -23, whereas neighboring Belgium saw sentiment jump five index points to a 51-month high of +4.
Japan’s JPY 106 billion trade surplus last month was significantly smaller than forecast and swung into deficit (JPY 209 billion) was adjusted for typical seasonal variation.
South Korean GDP unexpectedly contracted 0.3% in the final quarter of 2025, trimming year-on-year growth by half a percentage point to 1.3%.
Australia’s labor market improved in December. The jobless rate fell by 0.2 percentage points to a 7-month low of 4.1% and was accompanied by a bigger-than-forecast 65.2k increase in employment and a marginal uptick in labor market participation to 66.7%.
Great Britain’s CBI survey of distributive trades, which has been lower than zero in 30 of the last 33 reported months, jumped to a 9-month high of -17 in January from -44 in December. The low of -50 occurred 2 years ago.
Consumer price inflation in Hong Kong rose to a 6-month high of 1.4% in December after a tight shot group ranging from July’s 49-month low of 1.0% and 1.2% in October and November.
Irish wholesale price inflation of -6.4% in December was its most negative reading in 29 months and a far cry from the October 2022 high of 13.6%.
Latvian producer price inflation dropped in half to a 4-month low of 1.0% in December following 2.1% readings in both October and November. Poland reported a 2.5% year-on-year decline in producer prices last month as well as a much better-than-anticipated 7.3% year-on-year increase in industrial production that same month.
After holding their interest rate at 4.5% from December 2023 until June 2025, officials at the Bank of Norway made cuts last June and September, each of 25 basis points, but have put the process of rate normalization on pause. Today’s statement following the first review of 2026 expresses no urgency to resume the cautious down-cycle but maintains its prior view that, while future rate moves could be either up or down, the likeliest scenario assuming that the economy evolves along the lines of its baseline forecast would entail one or more further cuts from the current 4.0% level. Geopolitical strains demand caution and a meeting-by-meeting approach.
Officials at the Central Bank of Malaysia prioritize price stability but unlike the case with many other monetary authorities have not formally defined that objective with a specific numerical target. Suffice it to say, their expectation that consumer prices will rise around 1.9-2.0% this year meets the criterion. Five 25-basis point interest rate hikes over a year following an initial tightening in May 2022 had been followed by a span of 26 months when the interest rate was kept at 3.0%. There so far has been only one subsequent easing, also 25 bps in size done last July to the current 2.75%. There’s no urgency to change what is considered an appropriate level further. “Core inflation in 2026 is expected to remain stable and close to its long-term average, reflecting continued expansion in economic activity and the absence of excessive demand pressures.”
As in Hungary, Turkey’s interest rate and inflation experiences this decade epitomize the danger of allowing politicians a voice in monetary policy-making. It rarely ends well. The Central Bank of Turkey‘s interest rate has been as low as 8.5% during much of the first half of 2023 and as high as 50.0% in much of 2024. There have been four interest rate trend reversals since June 2023. CPI inflation went from 14.6% at end-2020 to 85.5% in October 2022, touched 38.2% in mid-2023, roared back to 75.5% in May 2024, and ended last year at 30.9%. As stated in today’s statement from the Central Bank of Turkey following an interest rate cut to 37% from 38%, “The tight monetary policy stance, which will be maintained until price stability is achieved. …The Committee will determine the policy rate by taking into account realized and expected inflation and its underlying trend in a way to ensure the tightness required by the projected disinflation path in line with the interim targets.”
U.S. personal income growth in October-November was slower than in August and September, while personal consumption expenditures grew by a decent 0.5% in each of the two most recently reported months. The core PCE price deflation rose monthly by 0.2% in each of the four months from August through November, but their year-on-year changes hovered in an above-target 2.7-2.8% corridor, printing at 2.8% in November versus 2.9% in July. This matches the verbal description that the disinflation process essentially stalled somewhat north of the 2.0% objected in 2025. The longer that above-target inflation continues, the greater becomes the risk that medium-term to longer-term price expectations disengage from the Fed’s target and adjust to the reality of higher-than-2% territory. Barring a sharp deflationary shock, actual inflation will in time likely adjust to long-term price expectations.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: Bank Negara Malaysia, Bank of Norway, Central Bank of Turkey, ECB Account, U.S. GDP and PCE price deflator
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