The U.S. dollar opened 2026 modestly higher on Friday after suffering its biggest annual decline in eight years. Thin holiday trading and closed markets in Japan and China kept volumes low, with investors positioning ahead of key U.S. economic data due next week.
The dollar’s weakness in 2025 was driven by narrowing interest-rate differentials with other major economies, concerns over the U.S. fiscal deficit, fears of a global trade war, and growing unease about Federal Reserve independence under President Donald Trump.
Why It Matters
Currency markets are entering 2026 facing heightened uncertainty over U.S. monetary policy and political influence on the Fed. Expectations that the next Fed chair could be more dovish have reinforced bets on rate cuts, weighing on the dollar despite its tentative early-year gains.
The greenback’s performance will influence global capital flows, inflation dynamics, and emerging market stability, making upcoming economic data and political decisions especially consequential.
Key Market Moves
- Dollar index: Up 0.2% at 98.39 after a 9.4% fall in 2025
- Euro: Down 0.2% at $1.1725 after a strong 2025 rally
- Sterling: At $1.3455, near multi-year highs
- Yen: Near 10-month lows at around 156.9 per dollar
- Aussie dollar: Up 0.5% at $0.6706
What’s Next
Attention will turn to U.S. payrolls and jobless data next week, which could shape expectations for further Fed rate cuts. Markets are also watching closely for President Trump’s announcement of the next Fed chair, with investors bracing for a more accommodative policy stance.
Meanwhile, the yen remains vulnerable as investors doubt the Bank of Japan’s willingness to tighten policy aggressively, leaving Japan exposed to currency weakness and potential intervention risks in 2026.
With information from Reuters.
