The euro rose in European trading on Wednesday against a basket of global currencies, resuming recovery attempts against the US dollar, supported by relatively active buying from multi-week low levels, amid cautious conditions dominating foreign exchange markets.

Investors are closely monitoring dramatic developments surrounding the independence of the Federal Reserve, following the unprecedented move to open a criminal investigation into Fed Chair Jerome Powell.

Attention is now turning to a batch of US economic data due later today, which is expected to provide strong signals on the future path of interest rates over the course of this year, amid heightened uncertainty prevailing across global markets.

With inflationary pressures easing for policymakers at the European Central Bank, expectations have revived for at least one European interest rate cut this year. To reassess these expectations, investors are awaiting further key economic data from the euro area.

Price overview

• Euro exchange rate today: the euro rose 0.1% against the dollar to 1.1649, from an opening level of 1.1641, with a session low at 1.1636.

• The euro ended Tuesday’s session down 0.2% against the dollar, resuming losses that had paused the previous day during a recovery from a four-week low at 1.1618.

US dollar

The US dollar index fell about 0.1% on Wednesday, reflecting a pause in the recent rise of the US currency against a basket of major and minor currencies, amid cautious trading conditions in foreign exchange markets.

Traders are paying close attention to the issue of Federal Reserve independence, following threats by the US Department of Justice to bring criminal charges against Chair Jerome Powell over alleged irregularities related to a central bank building renovation project.

In an unprecedented show of solidarity, global central bank officials issued a coordinated statement on Tuesday expressing full support for Powell and for protecting the independence of monetary decision-making in the United States.

These tensions come as markets await an announcement by President Donald Trump in the coming weeks regarding his nominee to succeed Powell, with Powell’s term set to expire in May, adding to uncertainty in global financial markets.

Recent consumer price data released on Tuesday were seen as potentially giving the Federal Reserve more room to cut interest rates, as policymakers seek to balance concerns over persistent price pressures with signs of weakness in the labor market.

To reassess these expectations, investors are later awaiting key US economic data, including producer prices and retail sales for December.

European interest rates

• Data released last week showed a slowdown in headline inflation across Europe in December, pointing to easing inflationary pressures on the European Central Bank.

• Following these figures, money market pricing for a 25-basis-point rate cut by the ECB in February rose from 10% to 25%.

• Traders adjusted expectations from keeping rates unchanged throughout the year to anticipating at least one 25-basis-point cut.

• To further reprice these expectations, investors are awaiting additional euro area economic data on inflation, unemployment, and wages.

The Japanese yen declined in Asian trading on Wednesday against a basket of major and minor currencies, extending its losses for a seventh consecutive session against the US dollar and falling to an 18-month low. The currency is now on track to lose its grip above the 160 yen per dollar level for the first time since July 2024, amid growing concerns over calls for early elections in the world’s fourth-largest economy.

The yen is also under pressure from easing inflationary pressures on Bank of Japan policymakers, which has led to a decline in expectations for a Japanese interest rate hike later this month.

Price overview

• Japanese yen exchange rate today: the dollar rose 0.25% against the yen to 159.45, the highest level since July 2024, from an opening level of 159.06, with a session low at 159.06.

• The yen ended Tuesday’s trading down 0.6% against the dollar, marking its sixth consecutive daily loss, driven by recent political developments in Japan.

Early elections

Hirofumi Yoshimura, leader of the Japan Innovation Party and a partner in the ruling coalition, said on Sunday that Takaichi may call for an early general election.

Japan’s public broadcaster NHK reported on Monday that Prime Minister Sanae Takaichi is seriously considering dissolving the lower house and calling an early general election in February.

Kyodo News said on Tuesday that Takaichi informed ruling party leaders of her intention to dissolve the House of Representatives at the start of its regular session scheduled for January 23.

Yomiuri Shimbun reported on Wednesday that Takaichi is considering holding early lower house elections on February 8.

The move to dissolve the current parliament comes as Takaichi seeks to strengthen her popular mandate and secure a comfortable parliamentary majority to ensure the passage of the 2026 fiscal budget and proposed economic reforms, especially as the current government faces challenges pushing legislation through a divided parliament.

Views and analysis

• News of early elections has generated political uncertainty among investors, which was immediately reflected in movements in the Japanese yen in foreign exchange markets, amid anticipation of how the vote could affect future Bank of Japan decisions on raising interest rates.

• Eric Theoret, currency strategist at Scotiabank in Toronto, said early elections would give Takaichi an opportunity to capitalize on the strong popularity she has enjoyed since taking office last October.

• Theoret added that the implications for the yen are very negative, as Takaichi is seen as a supporter of accommodative monetary and fiscal policy, and would therefore be comfortable with looser fiscal policy and larger budget deficits.

Japanese interest rates

• Market pricing for the probability of the Bank of Japan raising interest rates by 25 basis points at its January meeting remains below 10%.

• The Bank of Japan will meet on January 22–23 to assess economic developments and determine the appropriate monetary tools for the current sensitive phase facing the world’s fourth-largest economy.

Most cryptocurrencies rose during Tuesday’s trading as risk appetite recovered following the release of US inflation data that came in below expectations, fueling speculation that the Federal Reserve could move toward cutting interest rates.

Data released today showed that the US consumer price index held steady at 2.7% year on year in December, while core inflation — which excludes food and energy costs — came in below forecasts at 2.6%.

Meanwhile, the earnings season for the final quarter of 2025 has begun, typically led by the banking sector. JPMorgan Chase reported revenues and profits that exceeded market expectations earlier today.

US President Donald Trump continued his attacks on Federal Reserve Chair Jerome Powell, telling reporters at the White House: “Powell has gone billions of dollars over budget, so he’s either incompetent or corrupt.”

Powell, in an unprecedented recorded statement, said he is under criminal investigation over testimony he gave to Congress regarding the renovation of the Federal Reserve’s headquarters, describing the probe as retaliation for his independent stance on interest rate policy.

Ethereum

In trading, Ethereum rose 3.1% at 20:28 GMT to $3,193.2, according to CoinMarketCap.

Over the past year, the rapid rise in oil production from the Americas — led by the United States, Guyana, and Brazil — has been a major source of frustration for the Organization of the Petroleum Exporting Countries (OPEC), as it has sought to rebalance the market and push oil prices higher.

OPEC’s efforts to maintain influence over global oil supply and prices now risk further erosion amid US intervention in Venezuela and President Donald Trump’s idea of taking control of the oil industry in the world’s largest country by crude reserves.

Venezuela, an OPEC member, holds an estimated 303 billion barrels of crude oil reserves — more than any other major producer in the group, including Saudi Arabia, Iraq, Iran, or the United Arab Emirates.

Analysts argue that US control over Venezuelan reserves, combined with investment by US companies to revive the South American country’s struggling oil sector, could decisively tilt global energy market dynamics in Washington’s favor, undermining OPEC’s influence over global oil markets.

Any meaningful recovery in Venezuelan oil supply — which currently accounts for less than 1% of global daily demand — would require billions of dollars in investment, potentially exceeding $100 billion, and many years before tangible results emerge. This assumes the establishment of robust new legal frameworks and strong security guarantees to reassure investors that they will not again face asset seizures or nationalization.

President Trump’s proposal to involve US companies in the recovery of Venezuela’s oil sector failed to generate enthusiasm among senior US oil executives during a meeting held at the White House on Friday.

Despite Trump praising Venezuelan oil as a source of “enormous wealth” for the industry and “great wealth” for the American people, executives responded coolly.

Exxon Mobil CEO Darren Woods told Trump: “Our assets there were seized twice, and you can imagine that going back a third time would require very significant changes compared with what we’ve seen historically.”

He added: “If you look at the current legal and commercial frameworks in Venezuela, they are not investable.”

Regardless of Venezuela’s future investability, US control over its oil industry would shift the balance of power in oil markets, granting Washington greater long-term influence over supply. This would likely weaken the influence of OPEC and the broader OPEC+ alliance, which includes Russia and Kazakhstan, over market balances and oil prices.

Analysts at JPMorgan said in a report that “this shift could give the United States greater influence over oil markets, potentially keeping prices within historically low ranges, strengthening energy security, and reshaping the balance of power in global energy markets.”

An oil price of $50 per barrel — a level Trump has targeted since taking office a year ago — would place significant pressure on oil revenues and non-oil investment projects across major OPEC producers, particularly Saudi Arabia.

The kingdom, the world’s largest crude oil exporter, is betting that any Venezuelan recovery remains years away and will require massive investment, according to sources familiar with Saudi thinking.

Other Gulf producers are also betting that reduced Venezuelan oil supplies to China could increase the share of Middle Eastern crude in Beijing’s imports, according to Gulf delegates.

This emerging global order, in which the United States seeks to control the oil resources of a third country, is reshaping market dynamics and creating additional challenges for OPEC and OPEC+.

President Trump wants Venezuelan oil flows to help push oil and energy prices even lower.

Prolonged low oil prices would deal a blow to oil revenues and the economies of all OPEC+ countries, potentially constraining their ability to manage supply and prices in the face of an unpredictable US president. OPEC+ will now have to factor in an additional variable when making production policy decisions, and assess how high prices can rise without risking a backlash from President Trump.