Last week, Greenland was the center of attention in the global financial markets. However, Donald Trump’s appearance at the World Economic Forum (WEF) in Davos, followed by a speech of his, eased some of the tension. His announcement that he was ruling out military action in Greenland positively influenced market reactions.
During a press conference, Trump stated that the US has complete access and emphasized, “There is no end, there is no time limit,” indicating a focus on factual matters. This has led the financial markets to believe that the US is stepping back from potential conflicts. NATO’s Secretary General confirmed discussions concerning operational details.
Although specifics are scarce, the markets received a temporary respite. Nevertheless, the unresolved issues mean that the risk of policy changes continues to be a significant concern.
This has resulted in considerable pressure on the stock market, while gold prices remain near new all-time highs. Confidence in most currencies appears low, except for the Swiss franc, which is benefiting from its status as a safe haven. This is largely due to various political issues in the UK, Japan, and the Eurozone that are weighing down their respective currencies.
The weakness of the US Dollar is closely tied to America’s involvement in trade and geopolitical matters, which undermine the currency and US assets.
In contrast, Switzerland enjoys political stability and robust regulations that support its financial system. Its non-NATO status allows it to maintain a neutral stance, contributing to a more stable economy and currency.
Looking at the US economic data released last week, the annualised GDP growth rose from 4.3 percent to 4.4 percent, while consumer spending remained steady. The delayed report on personal consumption expenditures showed an increase, with consumer spending holding at 3.5 percent.
The early impression of the economy entering the new year is that, despite ongoing trade tensions, the US economy is starting the year from a stronger position.
In the final session of the weekend, USD index came under severe pressure. By the close of the day, it dropped by 1.5% due to political instability. Simultaneously, the market is turning its attention to the Federal Reserve regarding its independence. There are opinions suggesting that a new Federal Reserve Chairman could implement more effective measures to lower US interest rates. Geopolitical uncertainty is also contributing to the downward pressure on the US Dollar.
The Federal Open Market Committee (FOMC) is set to convene on Wednesday to announce the policy rate. While no changes are anticipated for this week, market participants are expecting a 25 basis point cut in both March and June.
The outcome for the next rate cut will depend on upcoming US economic reports, and all eyes will be on the Fed Chairman’s post-statement and press conference for guidance.
This week, the market will pay close attention to Durable Goods and the trade balance, with a particular emphasis on the FOMC meeting scheduled for Wednesday.
SBP to announce policy rate
Meanwhile, the State Bank of Pakistan (SBP) will announce its decision on January 26. Recent bids and the yields of treasury bills and Pakistan investment bonds, which have fallen below the policy rate, reflect market sentiment that suggests the Central Bank may lower its policy rate. Although pressure on the balance of payments has grown, softer inflation aided by declining oil and food prices, along with stable foreign exchange reserves and a necessary boost from remittances, is providing some protection against falling exports. The pressing question now is the extent of the SBP’s potential cut, which may range from 50 to 100 basis points. However, the SBP must also consider the sharp increase in demand for food as the holy month of Ramazan approaches mid-month. Historically, food prices soar during this month, which should ideally decline to relieve consumers. How effectively the price management and control committee addresses this will be critical. Furthermore, we cannot overlook our commitments to the IMF regarding borrowing, which currently seems manageable.
Overall, I think the economy is stable. The recent unwarranted alarm about a deteriorating economic situation is misguided. Critics should refrain from pursuing unrealistic gains and instead focus on presenting viable solutions to existing problems.
The reduction in policy rates to nearly half from the peak of 22 percent in June 2020, has primarily lowered borrowing costs and eased deficit financing. However, has this resulted in businesses providing consumers with relief through cheaper borrowing? The business community needs to document and announce how much additional revenue it will generate for the treasury through increased tax collection.
In the meantime, major currencies have generally weakened against the USD due to geopolitical tensions, causing a decline in their strength.
Have automakers lowered their vehicle prices, or have prices for electronics and other goods seen a drop as both Japanese Yen and Chinese Yuan have fallen?
Pakistan’s exports to Europe total approximately $8.8 billion. What implications arise if the European currency weakens?
Moreover, what is the status of Rupee liquidity, which has been in short supply for nearly a decade, as evidenced by Open Market Operations (OMOs) over the past ten years? The combined outstanding total for both conventional and Islamic finances is Rs 13,829 billion.
“As of December 2024, year-end data indicated a rebound in the advance to deposit ratio (ADR), which climbed to 52.86%. However, the latest data from the SBP published in November 2025 is not promising, reflecting a decrease in ADR to 37.93%. There is hope that the closing figures for December 2025 will demonstrate a significant recovery. Otherwise, the reduced banks lending to deposit ratio may confirm the ongoing economic slowdown. It is crucial for this ratio to rise well above 50% to help boost the economy”.
WEEKLY OUTLOOK — JAN 26-30
GOLD @ USD 4982— As I mentioned in my previous post, last week brought significant gains for gold and silver amidst the ongoing geopolitical crisis. Additionally, it’s noteworthy that gold has not only reached but also exceeded my December 29, 2025 target mentioned in Business Recorder. This development positions gold to potentially attain my projected target of USD 5,200-USD 5,500 by December 2026. This week, I expect gold to continue trading in a similar fashion, with no changes to negatively impact buying sentiment. There may be occasional corrections, presenting opportunities to buy on dips. I predict gold will hit the USD 5,000 mark and potentially go beyond it this week. Support levels are at USD 4,910 and USD 4,820. A break above USD 5,068 would encourage movement toward USD 5,100 or higher, although market volatility is expected to persist.
EURO @ 1.1828— Euro has reached my weekly target of 1.1820. It must surpass 1.1920 to see additional increases. There is a possibility of a correction, but it needs to fall below the 1.1810-20 range to hit 1.1750.
GBP @ 1.3645— The Pound Sterling experienced significant gains that surpassed expectations, bolstered by robust data. A decline could occur if it does not surpass the 1.3690–00 range, potentially falling to 1.3520. A break below this level would likely lead to further losses. Otherwise, it may rise to 1.3730.
JPY @ 155.72— The $/Yen pair experienced a sharp decline due to speculation about BOJ intervention. The market needs to consider the potential for such intervention, or the dollar could rebound. Key support levels are approximately 154.35 and 153.80. A rise above 157.10 could lead to a target of 158.20.
Copyright Business Recorder, 2026
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka