The US Treasury released its latest Foreign Exchange Report in January 2026, receiving little fanfare as the report broke no new ground on ‘manipulation’ findings. Yet officialdom and the global FX community should pay attention.
For the better, this improved report differs qualitatively, analytically and structurally from those of the last 10 years. However, the latest report was comprised of an intimidating 69 pages. Compared to the prior report’s 38, that is too long, and a far cry from the day when one international affairs under secretary ordered staff to keep the report under five pages.
Much better macro and FX coverage
Since 2015, consistent with US legislation requiring a more quantitative report aimed at reducing the Treasury’s discretion, the FXR concentrated rather narrowly on US bilateral trade deficits, material current account surpluses and large-scale foreign exchange intervention. Those data points justifiably remain a FXR focus, but country coverage adopted a seeming mechanistic tick-the-box approach.
Much was lost. External developments, especially currency valuations, often mirror countries’ economic structures and policies, rather than official FX action per se. The renminbi is managed. But China’s present massive current account surplus also critically reflects a broken growth model emphasising extremely high saving and state-led investment at the expense of consumption and services – causing excess capacity that cannot be absorbed by a weak economy.
In January’s FXR, discussions about how macroeconomics and growth models were shaping external developments were kept to a minimum. This report generally corrects that flaw, and in the process offers readers a far deeper and textured analysis of global economic and financial developments. It is now more analogous to the Federal Reserve’s biannual monetary policy reports.
Asia section particularly praiseworthy
This FXR’s most distinctive feature is the deep dive, especially on China, into a greater all-encompassing view on FX intervention beyond financial authority balance sheets. The Treasury’s analysis delves into the FX activities of Chinese state-owned commercial banks and other governmental entities, as well as examining swap and forward market activity plus the structure of capital flow measures.
This report also highlights Japan’s Government Pension Investment Fund, Korea’s National Pension Service and Investment Corporation, Singapore’s Government Investment Corporation among others.
Given data opacity and complexities, the Treasury offers a justified bottom line – it will rely on its own estimates of FX intervention when those deviate significantly from official reports. Countries not publishing intervention data won’t be given any benefit of the doubt in the Treasury’s intervention assessments.
Transparency
The FXR correctly observes that a lack of transparency impedes getting to the bottom of possible country interventions. Building on longstanding US efforts to improve FX transparency, the FXR highlights the Treasury’s welcome and laudable joint statements with Japan, Switzerland, Malaysia, Thailand, Korea and Taiwan. These statements reiterate longstanding themes and are not pathbreaking, but are an added step in the right direction.
However, it is somewhat inconsistent to call for transparency from others when the Treasury itself has not been forthcoming about its financial engagement on Argentina or its involvement in Japanese yen rate-checking.
Call for renminbi appreciation
The Treasury’s China analysis, mirroring others, points to the renminbi’s large undervaluation and calls for renminbi appreciation. Chinese authorities appear to agree and have recently allowed the currency to rise. Still, given the renminbi’s massive undervaluation and China’s need for the external sector to help hit growth targets amid weak domestic demand, renminbi appreciation is not likely to be enough to make the Treasury happy or dent the Chinese export juggernaut.
The Treasury observes there must be corresponding deficits to surpluses and in a welcome development acknowledges that America’s large fiscal deficits are a contributing factor to global imbalances via their contribution to dissaving.
The FXR then amusingly implies these deficits are being tackled through the US administration’s plans to reduce the fiscal deficit to 3% of gross domestic product and the progress being achieved by reducing the deficit from 6.3% of GDP in financial year 2024 to 5.8% in financial year 2025. It does so ignoring the Big (not so) Beautiful Bill will boost the deficit this year and over the medium term.
Trade policy and currency protectionism
In its Donald Trumpian quest to talk tough about harmful currency practices, the Treasury revives a bad idea – section 301 investigations into currency practices. The silver lining is that the Treasury confines its willingness to recommend such investigations to the Office of the US Trade Representative to cases where the Treasury finds ‘manipulation’.
Regardless, the idea is flawed. There is no scientific way to precisely gauge currency under- or over-valuation. If the dollar is strong and overvalued due to an imbalanced US policy mix, other currencies will by definition be undervalued, whether harmful practices are being pursued or not. Addressing the US policy mix would be the right answer.  Currency valuations reflect not just a country’s current account, but also its capital account. Thus, they are impacted by fiscal and monetary policies, factors well beyond the scope of trade policy and USTR authority.
On balance, while too long, the latest Treasury FXR is a richer and stronger analytic tome than its recent predecessors.
Mark Sobel is Chief Economist and Vice Chair at OMFIF.
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