Monetary Policy Market Wrap January 2026

Key Trends

January was dominated by FX volatility and elevated central‑bank FX intervention risk, alongside intensified Fed governance scrutiny as the U.S. administration prepared to name a new Fed chair (flagged on Jan 31). These themes appear across all 15 daily snapshots (FX volatility 15/15), with central‑bank intervention or signaling referenced in 13/15 and Fed governance concerns in 13/15. Tariff rhetoric and trade‑driven inflation pressures were noted in 5/15 entries. Overall market sentiment was cautious and jittery rather than decisively risk‑on or risk‑off.

Notable Events

- Jan 31: Public discussion of a forthcoming Fed‑chair nomination raised questions about Fed independence and governance. - Jan 27: Acute JPY volatility spurred explicit intervention risk and prompted central‑bank attention. - Mid/late month: Tariff rhetoric and geopolitical shocks intermittently lifted short‑term inflation concern and focused central banks on FX management.

Performance

Price action concentrated in FX markets. JPY crosses registered the most pronounced intraday moves (Jan 27), and broader G10 FX ranges widened around Jan 27 and Jan 31. FX implied and realized volatility trended higher through the month, with spillovers to intraday equity volatility and intermittent repricing in inflation breakevens and short‑end rates. Central‑bank communications increasingly influenced liquidity and intra‑session price dynamics in affected currency pairs.

Outlook

Near term, monitor the Fed‑nomination timeline, tariff/newsflow, JPY trajectories, and central‑bank FX statements. Given elevated governance and intervention risks, expect episodic FX‑led volatility to persist; policy statements and nomination developments will be primary catalysts for cross‑asset repricing.