On Thursday, January 26th, the Federal Reserve will announce its first interest rate decision of the year, a significant event for the gold and forex markets, particularly as it is the inaugural decision of 2026.
At 3:00 AM this Thursday, the Federal Reserve is set to reveal its rate decision, with financial institutions widely anticipating that the current rate of 3.5% to 3.75% will remain unchanged, citing stable performance in the US job market and inflation data over the recent period.
Although US Immigration and Customs Enforcement (ICE) continues its vigorous crackdown on illegal immigration, the non-farm payrolls figure has stabilized around 50,000, with 56,000 in November and 50,000 in December; this stable employment environment has reduced the urgency for the Fed to implement rate cuts.
Over the past five years, US inflation data has undergone a shift, initially declining rapidly before entering a plateau phase; from mid-2024 to the present, the annual rates for both core CPI and the PCE price index have fluctuated between an upper bound of 3.3% and a lower bound of 2.8%, hovering around the 3% mark. This level is slightly above the moderate 2% target but remains generally healthy, and the Fed has no pressing need to adjust rates specifically to curb inflation.
From a news perspective, Trump's efforts to acquire Greenland have strained relations with European nations, prompting European institutional funds to begin a large-scale sell-off of US assets, raising the distinct possibility of a simultaneous downturn in US stocks, bonds, and the currency. From last Thursday through this Monday, the US Dollar Index experienced a 'waterfall-like' decline, triggering panic; if the Fed were to proceed with further rate cuts, the dollar's decline would likely accelerate rapidly. From a market-stabilization standpoint, maintaining the current interest rate is also the prudent course for the Fed.
On Wednesday, the Bank of Canada will announce its interest rate decision at 22:45, and the probability of it holding the benchmark rate steady at 2.25% is extremely high, as Canada is confronting significant external shocks, making drastic monetary policy adjustments inadvisable.
The Canadian economy is heavily reliant on exports to the United States, yet the US continues to hike import tariffs and impose restrictions on Canadian goods; in 2024, Canada's total export value was $549.62 billion, with 77% of those exports destined for the US. Such a concentrated export structure makes Canada particularly vulnerable to trade barriers originating from its southern neighbor.
Since taking office, Trump's measures to increase tariffs on Canada have been almost relentless: a 25% tariff hike in February 2025, an increase to 35% in July with a 40% tariff on transshipped goods, and threats of a 100% tariff as recently as this January. These escalating trade barriers are severely impacting Canada's export industry and testing its economic resilience.
To support Canada's economic recovery and boost exports, there is an argument for the Bank of Canada to continue cutting its benchmark rate, thereby promoting a depreciation of the Canadian dollar to enhance the competitiveness of export goods. However, adjusting interest rate policy amid such volatile external conditions is not a wise move; the safest approach is to wait until US policies towards Canada are fully implemented and clear signs of deterioration appear in inflation, employment, and other economic data before considering rate reductions.
In 2025, the Bank of Canada implemented four rate cuts totaling 100 basis points, bringing the current rate to 2.25%. In absolute terms, a 2.25% rate is now within a normal range, neither excessively high nor low. Despite intensifying external pressures, Canada's CPI and employment data have remained stable, indicating that the urgency for a rate cut at this stage is not particularly high.