The euro is holding much of this week’s rebound after bouncing off key technical support, as easing risk headlines helped stabilize the dollar without driving a fresh leg higher for EUR. Meanwhile, one major European bank research note warning of gradual European portfolio rebalancing away from US assets has sparked an unusually strong pushback from both a CEO and the US Treasury Secretary, underscoring how sensitive Washington is to the idea of “weaponizing” US assets given America’s large negative international investment position. Recent market moves — weaker US equities and dollar alongside rising long-dated Treasury yields — suggest investors are already demanding a higher premium for US political and fiscal risk, with the Greenland and tariff talks now the next potential flashpoint.

USDJPY has edged up, keeping the yen under pressure as fiscal worries persist and the BoJ begins its two-day meeting, where rates are expected to stay at 0.75% but with a more cautious tone on yen weakness and inflation risks. Markets see the January 23 decision and Governor Ueda’s press conference as a high-volatility event, with no hike likely keeping USDJPY elevated, though any hint of an easier path to future tightening could trigger a sharp yen rebound. Near term, rising JGB yields and political uncertainty are weighing on Japanese assets and the yen, but over time higher domestic yields and policy normalization should improve the yen’s fundamental appeal and support a stronger currency after the current stress phase fades.

The Australian dollar led gains to fresh yearly highs after a strong December jobs report showed a 65,200 increase in employment and a drop in unemployment to a seven-month low of 4.1%. Markets have quickly shifted to a more hawkish RBA outlook, now pricing around a 60% chance of a February rate hike, with bank forecasts split and the meeting seen as genuinely “live.” Recent data point to resilient demand and still-sticky inflation, keeping tightening expectations elevated, while speculators remain net short AUD but have sharply reduced those positions since November.