Market sentiment was heavily influenced by rising geopolitical risks, especially after U.S. President Donald Trump escalated tensions with his remarks on several fronts. From Air Force One, Trump threatened further actions against Venezuela, including U.S. control over the country's resources and allowing U.S. oil companies to operate there. He also hinted at deploying U.S. troops in Venezuela, military action against Colombia, and potential strikes on Iran. Additionally, Trump warned of raising tariffs on India if it didn’t cooperate in limiting Russian oil flows. These comments sparked uncertainty, challenging the risk-on mood in the markets.
Data from Asia showed mixed results. Japan’s manufacturing PMI rose to 50.0 in December, ending a five-month contraction. It’s worth noting that Bank of Japan (BoJ) Governor Kazuo Ueda signaled further rate hikes if growth and inflation evolve as forecast.
In China, the services PMI eased to 52.0, reflecting weaker export demand and job cuts, but business confidence improved as 2026 approached. Meanwhile, China also released its investment plans for 2026 with $42 billion in infrastructure project spending.
On the economic side, Federal Reserve (Fed) officials signaled a pause in interest rate cuts. Philadelphia Fed President Anna Paulson reinforced that any rate easing in 2026 would depend on clear signs of inflation reaching the target. This helped U.S. yields and pushed the U.S. Dollar to a three-week high.
In oil markets, crude prices initially dropped in Sunday evening trade, before rebounding slightly and then easing again. The market largely brushed off the U.S. seizure of Venezuelan President Nicolás Maduro, as officials confirmed no disruptions to oil production or refining. OPEC+ kept output steady, with analysts noting that global supply was sufficient to prevent any immediate disruptions in Venezuelan exports. Despite the early drop, oil prices bounced back as geopolitical tensions rose, though they ended the day modestly lower.
Bitcoin gained momentum, supported by PwC’s positive stance on crypto and the expected clearer regulations under the GENIUS Act in the U.S., which boosted institutional confidence in digital assets.
In the foreign exchange (FX) markets, the U.S. Dollar Index (DXY) rose for the fourth consecutive day, reaching a three-week high. Gold and silver prices extended their gains, while crude oil dropped for the third day in a row. Bitcoin rallied for five days, hitting a three-week high. EURUSD fell for the fourth consecutive day, GBPUSD had a two-day losing streak, and USDJPY hit a weekly high. AUDUSD and NZDUSD remained under pressure, while USDCAD rose for the fifth straight day, hitting a two-week high. Wall Street closed mixed on Friday, while Asia-Pacific shares edged higher early Monday, despite ongoing geopolitical concerns.
The overall strength of the U.S. Dollar, combined with cautious optimism in the market, is putting pressure on major currencies, particularly due to the dovish outlook on the European Central Bank (ECB) and the Bank of England (BoE). At the same time, concerns about a potential rate hike from the Bank of Japan (BoJ) were largely ignored. Although Japan’s PMI showed improvement, it couldn’t overcome the stronger U.S. Dollar ahead of this week’s major data and events. As a result, EURUSD dropped for the fourth consecutive day, hitting a three-week low, while GBPUSD fell for the second day in a row. Meanwhile, USDJPY rose to its highest level in two weeks.
AUDUSD and NZDUSD are both struggling under the weight of a stronger U.S. Dollar, unable to react positively to China's stimulus news due to mixed PMI data from China. On the other hand, USDCAD has risen for the fifth straight day, hitting a two-week high. This is driven by the strength of the U.S. Dollar and the pressure from falling crude oil prices, which are a key export for Canada.
The market is facing downward pressure on crude oil prices due to a combination of factors. Despite U.S. attacks on Venezuela, there are no signs of disruptions to global oil supplies, and OPEC+ has remained inactive. This, along with the firmer U.S. Dollar, concerns over higher Federal Reserve rates, and economic struggles in the Asia-Pacific region, are weighing on oil prices. Speculation is also growing that Venezuela might increase output following the U.S. takeover, and that Russian oil could return to the market if a Russia-Ukraine peace deal is reached, further encouraging bearish sentiment in the energy sector.
Market uncertainty over the next moves from major central banks, combined with ongoing geopolitical concerns and hopes for positive crypto regulations in 2026, is supporting optimism in gold, silver, and cryptocurrencies early on Monday. As of press time, gold is up over 1.0%, silver has risen 3.0%, and Bitcoin (BTC) is up 1.0%. Ethereum (ETH) is also seeing mild gains, with both assets looking for further direction from risk news and this week’s key U.S. data releases.
Monday’s economic calendar will highlight the U.S. ISM Manufacturing PMI, but the real focus will be on news surrounding the FOMC, Venezuela, and Russia. This week, key data will include the U.S. Non-Farm Payrolls (NFP), ISM Services PMI, University of Michigan Consumer Sentiment, and inflation data from Europe and China. Updates on President Trump’s Federal Reserve (Fed) Chair nomination will also be closely watched.
Given the recent strength of the U.S. Dollar, strong economic data could challenge the gains in major currencies, particularly the Antipodeans and cryptocurrencies. On the other hand, equities may rise slightly, and gold could remain firm unless there is a major surprise. Crude oil, however, might continue to face downside pressure unless geopolitical concerns about supply disruptions outweigh the ongoing oversupply and slowing demand narratives.
May the trading luck be with you!
