The euro rose in European trading on Tuesday against a basket of global currencies, extending its recovery for a second consecutive day from a four-week low against the US dollar. The move was supported by continued buying from lower levels and by a pullback in the US currency following the release of bleak economic data in the United States.

Recently, expectations for the European Central Bank to cut interest rates in February have declined. To reassess these expectations, investors are closely monitoring a series of key inflation readings due this week from Germany and across the wider euro area.

Price overview

• Euro exchange rate today: The euro rose 0.15% against the dollar to $1.1738, from an opening level of $1.1722, after touching a session low at $1.1711.

• The euro ended Monday’s session up by less than 0.1% against the dollar, marking its first gain in four days, after earlier hitting a four-week low at $1.1659.

US dollar

The US dollar index fell by around 0.2% on Tuesday, extending its losses for a second straight session and moving further away from a four-week high at 98.86 points, reflecting continued weakness in the US currency against a basket of global currencies.

Beyond profit-taking pressure, the dollar retreated after disappointing US data showed a deeper contraction in the manufacturing sector in December, offering fresh evidence of slowing economic activity during the fourth quarter of last year.

These weak figures kept expectations of monetary easing by the Federal Reserve intact and confirmed that geopolitical risks alone are insufficient to sustain further gains in the US dollar.

The dollar also faced additional downside pressure following comments from Minneapolis Federal Reserve President Neel Kashkari, a voting member of the central bank’s rate-setting committee this year, who told CNBC that he sees a risk of a sharp rise in the unemployment rate.

European interest rates

• Money market pricing for the probability of a 25-basis-point interest rate cut by the European Central Bank in February currently remains below 10%.

• To reassess these expectations, investors are awaiting later today the release of Germany’s headline inflation data for December, from the euro area’s largest economy.

• On Wednesday, headline inflation data for the entire euro area for December will be released, which is expected to provide strong clues on the future path of monetary policy easing by the European Central Bank.

Interest rate differential

Following the Federal Reserve’s latest decision, the interest rate gap between Europe and the United States narrowed to 160 basis points in favor of US rates, the smallest differential since May 2022, a development that supports further upside in the euro against the US dollar.

The Japanese yen rose in Asian trading on Tuesday against a basket of major and minor currencies, extending its recovery for the third consecutive day against the US dollar, supported by renewed buying from two-week lows. The move came as the US currency entered a profit-taking phase after reaching a four-week high.

With the majority of Bank of Japan board members leaning toward continuing interest rate hikes in 2026, global markets are closely awaiting the release of further key economic data from the world’s fourth-largest economy, which is expected to provide clearer signals on the future path of Japan’s monetary policy normalization.

Price overview

• Japanese yen exchange rate today: The dollar slipped against the yen by 0.1% to ¥156.24, from an opening level of ¥156.38, after recording a session high at ¥156.80.

• The yen ended Monday’s session up 0.3% against the dollar, marking a second consecutive daily gain, after earlier touching a two-week low at ¥157.30.

US dollar

The US dollar index fell by about 0.2% on Tuesday, extending its losses for a second session in a row and pulling back from a four-week high at 98.86 points, reflecting continued weakness in the US currency against a basket of global currencies.

Beyond profit-taking pressure, the dollar retreated following bleak US data that showed a deeper contraction in the manufacturing sector in December, offering fresh evidence of slowing economic activity during the fourth quarter of last year.

These weak figures reinforced expectations of monetary easing by the Federal Reserve and confirmed that geopolitical risks alone are insufficient to sustain further gains in the US dollar.

The dollar also came under additional pressure following comments from Minneapolis Federal Reserve President Neel Kashkari, a voting member of the rate-setting committee this year, who told CNBC that he sees a risk of a sharp rise in the unemployment rate.

Japanese interest rates

• Last week in Tokyo, the summary of opinions from the Bank of Japan’s latest monetary policy meeting was released. The meeting, held on December 18–19, resulted in an interest rate hike to 0.75%, the highest level since 1995.

• The summary showed a clear hawkish shift among most board members, with many pointing to the need for further rate increases in the future. They agreed that gradually raising interest rates and reducing monetary stimulus are necessary to ensure long-term price stability.

• Market pricing for the probability of a quarter-percentage-point rate hike by the Bank of Japan at the current January meeting remains steady at around 20%.

• To reassess these expectations, investors are awaiting the release of Japan’s November wage data on Thursday, which the Bank of Japan places significant weight on when determining the future path of interest rates.

The US move against Venezuelan president Nicolás Maduro has refocused attention on one of the world’s most politically sensitive oil industries, forcing investors to reassess who controls the country’s petroleum resources and whether they can be meaningfully revived after decades of decline.

For now, the answer appears relatively straightforward. Andy Lipow, president of Lipow Oil Associates, said: “Petróleos de Venezuela (PDVSA), the state-owned oil company, controls the vast majority of oil production and reserves.”

US energy major Chevron operates in the country through its own output and via a joint venture with PDVSA, while Russian and Chinese firms are also involved through partnerships. However, “majority control still rests with PDVSA,” according to Lipow. Chevron shares rose more than 6% in pre-market trading by 8:00 a.m. Eastern Time on Monday.

Venezuela nationalized its oil industry in the 1970s, leading to the creation of PDVSA. Oil output peaked at around 3.5 million barrels per day in 1997, but has since fallen to an estimated 950,000 barrels per day, of which about 550,000 barrels per day are exported, according to data from Lipow Oil Associates.

If a government more aligned with the United States and more supportive of investment were to take power, Chevron would be “best positioned” to expand its role, said Saul Kavonic, head of energy research at MST Financial. He added that European firms such as Repsol and Eni could also benefit, given their existing presence in Venezuela.

What does this mean for global oil markets?

Industry experts warned that any regime change could disrupt the trading chain that keeps Venezuelan oil flowing.

“Given the lack of clarity over who is in charge in Venezuela right now, we could see exports grind to a halt because buyers don’t know who to pay,” Lipow said. He added that the latest round of US sanctions targeting the so-called shadow fleet of oil tankers had already hit exports hard, forcing Venezuela to cut production.

The term “shadow fleet” refers to tankers operating outside traditional shipping, insurance, and regulatory systems to transport oil from sanctioned countries. These vessels are commonly used to move crude from countries such as Venezuela, Russia, and Iran, which face US restrictions on energy exports.

Lipow expects Chevron to continue exporting roughly 150,000 barrels per day, limiting any immediate impact on supply. However, he said broader uncertainty could add a short-term risk premium of around $3 per barrel.

This potential increase comes at a time when many analysts believe the market is adequately supplied, at least for now. Bob McNally of Rapidan Energy Group said the oil market is currently heading toward a surplus, describing the immediate impact as “almost negligible.”

Venezuela’s longer-term importance lies in the type of crude it produces. The country’s heavy, high-sulfur oil is difficult to extract, but highly sought after by complex refineries, particularly in the United States. McNally said: “US refineries love to gulp down this thick crude from Venezuela and Canada.”

He added: “The real question is whether the oil industry can return to Venezuela and reverse two decades of decline, neglect, and damage, and actually raise production again.”

If opposition leader María Corina Machado were installed as president quickly, sanctions could be eased and oil exports might initially rise as inventories are drawn down to generate revenue, according to Lipow. However, he noted that any short-term increase could weigh on prices.

Global benchmark Brent crude futures for March delivery rose 0.5% to $61.03 per barrel, while US West Texas Intermediate futures for February delivery climbed 0.6% to $57.64 per barrel.

Still, any vision of a sustained recovery faces severe physical constraints. “Venezuela’s oil industry is in such a degraded state that even with a change in government, it is unlikely we would see any meaningful increase in production for years,” Lipow said, noting that rehabilitating existing infrastructure would require substantial investment.

Similarly, Helima Croft of RBC warned that the road to recovery would be long, pointing to “decades of decline under the Chávez and Maduro regimes.” She said oil executives estimate that at least $10 billion per year would be needed to repair the sector, with a “stable security environment” being an essential prerequisite.

She added: “All bets are off in a chaotic power transition scenario, like those seen in Libya or Iraq.”

Copper prices jumped toward record levels on Monday, as supply concerns intensified following a strike at a Chilean mine, alongside expectations of market deficits and declining inventories in warehouses approved by the London Metal Exchange.

Benchmark copper on the London Metal Exchange rose 2.8% to $12,823 per metric ton by 10:42 GMT, after touching an intraday high of $12,905.5 per ton earlier in the session. The metal, widely used in the energy and construction sectors, had reached a record level of $12,960 per ton last week.

Traders said the strike at the Mantoverde copper-gold mine, operated by Capstone Copper in northern Chile, reinforced the narrative of tightening supply in the market.

Mantoverde is expected to produce between 29,000 and 32,000 metric tons of copper. While this represents only a small share of global mined copper output, estimated at around 24 million tons this year, it nonetheless strengthens expectations of a supply shortfall.

Analysts at UBS said in a note: “We expect copper demand to grow by around 3% in 2026, versus growth in refined copper supply of less than 1%, resulting in a deficit of between 300,000 and 400,000 tons, rising to around 500,000 tons in 2027.”

Copper prices were also supported by falling inventories at the London Metal Exchange, which declined to 142,550 tons, down 55% since late August.

A large portion of the copper leaving the LME system has been shipped to the United States, where prices also remain elevated, as tariffs on copper are under review, despite the metal being granted an exemption from import duties that came into force on August 1.

In related markets, aluminum earlier touched $3,069 per ton, its highest level since April 2022, amid concerns over potential supply shortages, partly linked to China’s production cap of 45 million tons.

Gregory Wietbicker, president of Wittsend Commodity Advisors, said: “For the past 20 years, prices on the London Metal Exchange have largely been set based on capital costs in China. Now the market has to start thinking about capital spending in places like Indonesia, Finland, or India.”

Aluminum rose 1.5% to $3,060 per ton, zinc gained 1.4% to $3,171, lead edged up 0.3% to $2,012, nickel increased 0.4% to $16,885, while tin surged 3.7% to $41,925 per ton.