Indonesia’s month-on-month inflation rate fell to -0.15% in January from 0.64% in the previous month. This decline was reported amid varying economic indicators across global markets.
In other news, the USD remained strong as the EUR/USD traded weakly near 1.1850, influenced by Kevin Warsh’s nomination as Federal Reserve Chair. The GBP/USD saw a drop below 1.3700 due to concerns regarding the Federal Reserve’s future direction.
Commodity Market Updates
Additionally, Gold prices decreased, dropping below $4,550 due to profit-taking activities. Bitcoin also experienced a decline, falling below the $75,000 mark.
Several central banks, including those in Canada, Sweden, Brazil, and Chile, kept their policy rates unchanged. The Eurozone’s robust Q4 GDP growth suggests the European Central Bank might also maintain their rates next week.
With Indonesia reporting a surprise month-on-month deflation of -0.15%, we see this as a clear signal of slowing domestic demand. This gives Bank Indonesia ample reason to consider an interest rate cut, especially when we recall they held the benchmark rate steady at 6.00% for much of 2025. Traders should view this as an opportunity to build short positions on the Indonesian Rupiah against a strengthening US Dollar, likely using non-deliverable forwards to express this view.
Expected Policy Divergence
The nomination of Kevin Warsh as the next Fed Chair is bolstering the US Dollar across the board, pushing pairs like EUR/USD and GBP/USD to multi-week lows. This policy divergence, with the Fed expected to be more hawkish while emerging markets signal easing, is the dominant theme for the coming weeks. We believe buying put options on the Euro and Pound Sterling is a prudent way to trade this dynamic, as it offers a defined-risk approach to betting on further dollar strength.
We are also seeing this dollar rally pressure commodities, with gold retreating from the historic highs it set late last year. As of January 2026, gold has fallen over 6% from its peak, and the prospect of higher US interest rates reduces the appeal of holding non-yielding assets. Similarly, hopes of a US-Iran deal are pushing WTI crude prices down, creating opportunities to short energy futures.
This divergence in central bank policy is likely to increase foreign exchange volatility, which had been relatively subdued in the final quarter of 2025. The sharp downturn in speculative assets like Bitcoin, which has corrected over 10% in a week, suggests a broader risk-off mood is setting in. We recommend using options strategies to not only place directional bets but also to protect portfolios from these larger expected price swings.
