Global Rate Divergence Intensifies Amid Trump-Driven Fed Shifts

The prospect of a Trump administration reshaping the Federal Reserve’s direction has triggered a sharp divergence in global interest rate expectations. As of January 12, 2026, the US10Y yield rose to 4.82%, up 22 basis points in two days, signaling market anticipation of faster-than-expected rate cuts or a policy pivot. This shift contrasts with the Bank of Canada’s Governor Tiff Macklem maintaining a cautious stance, with the Canadian benchmark rate held at 4.75%, prompting speculation about a widening gap in monetary policy coordination. Currency markets responded sharply: the EURUSD fell to 1.0765, down 0.8% on the day, while USDJPY climbed to 153.45, its highest level since 2023, driven by expectations of a more dovish Bank of Japan and a more hawkish Fed. The DXY index, tracking the dollar against a basket of six major currencies, reached 112.30, its highest since late 2022, reflecting broad-based dollar appreciation. Equity markets showed mixed reactions. The SPX dropped 1.4% to close at 5,108.6, pressured by rising bond yields and concerns over rate uncertainty. Technology stocks, particularly high-growth names with long-duration valuations, were hit hardest, with the NASDAQ-100 falling 2.1%. In contrast, financials and utilities saw modest gains as yield-sensitive sectors benefited from higher rate expectations. Market participants now closely monitor Fed nomination timelines and potential policy statements from central bank governors, including Macklem, for signs of alignment or further divergence. The growing split in global rate trajectories could influence capital flows, trade balances, and inflation dynamics across advanced economies.