US Dollar Strengthens in Early 2026 Amid Global Currency Shifts

Dollar Rebounds After Significant 2025 Decline

The US dollar began 2026 with a 0.2% gain, reaching 98.44 on the dollar index ¹

. This strengthening comes after a challenging 2025 where the dollar experienced its largest annual decline in eight years, dropping 9.4% against major currencies. The dollar's performance was influenced by factors such as narrowing interest rate differentials between the US and other countries, concerns over the US fiscal deficit, and global trade tensions.

Currency Market Dynamics

The euro depreciated 0.2% to $1.1725 following weaker-than-expected Eurozone manufacturing activity in December, which fell to its lowest level in nine months. Despite this, the euro recorded a 13.5% gain for 2025, marking its largest annual appreciation since 2017. Similarly, the pound sterling was last traded at $1.3439, having surged 7.7% in 2025, its biggest annual gain since 2017.

Market Outlook and Economic Indicators

Market participants are now focusing on key US economic data releases scheduled for the coming week, including employment figures and unemployment claims. These data points will be crucial in shaping expectations about the future direction of US monetary policy and interest rates. Additionally, market attention is directed towards the potential appointment of the next Federal Reserve (Fed) chair, as Jerome Powell's term concludes in May 2026. President Donald Trump is expected to announce his choice soon, with White House economic advisor Kevin Hassett being a leading contender.