Dollar Rebounds: 2026 Kicks Off with Struggles and Surprises

As 2026 begins, the U.S. dollar shows signs of recovery after a challenging past year, influenced by upcoming economic data that could impact interest rates. Market participants await crucial labor market reports amid investor speculation on future Federal Reserve leadership and ongoing concerns about central bank independence.

The U.S. dollar commenced 2026 with renewed strength, rebounding after a difficult year. Anticipation builds among traders for an array of upcoming U.S. economic data, specifically focusing on labor market reports, to forecast the trajectory of interest rates.

Despite gains against most currencies, concerns linger over the U.S. fiscal deficit, trade wars, and Federal Reserve independence, casting shadows on the dollar's performance. Speculation around the next Federal Reserve chair, as President Trump gears up to announce his pick, adds another layer of uncertainty.

While the euro and sterling faced declines, the Japanese yen remained an outlier, close to its 10-month low, with market focus shifting towards a possible Bank of Japan intervention. Traders continue to closely monitor interest rate movements both in Japan and the U.S. as the global monetary landscape evolves.

(With inputs from agencies.)