LONDON, January 3, 2026 — The U.S. dollar opened the new trading year with gains on Friday, recovering after its steepest annual decline in eight years. Traders shifted focus to upcoming U.S. labor market data and the looming selection of a new Federal Reserve chair to gauge the future path of interest rates.
Why is the dollar gaining at the start of 2026?
The dollar index rose 0.12% to 98.37 in thin trading on January 2, marking a stronger opening after a difficult 2025. The greenback’s annual drop was fueled by a narrowing interest rate gap with other economies, worries about the U.S. fiscal deficit, a global trade war, and concerns over Federal Reserve independence—issues analysts expect to persist into the new year.
What economic data are traders watching next?
Market participants are awaiting a dense calendar of U.S. macroeconomic releases next week, culminating in the government payrolls report on Friday. Expectations for the Federal Reserve’s future interest rate policy will be shaped by this data, which will offer crucial insight into the health of the labor market.
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How did major currencies perform against the dollar?
The euro fell 0.11% to $1.1732 after surging more than 13% in 2025, its biggest annual rise since 2017. Sterling weakened 0.04% to $1.3465 following a 7.7% annual increase.The Japanese yen was an exception, weakening 0.11% to 156.84 per dollar after rising less than 1% in 2025, remaining near a 10-month low.
What is the significance of the upcoming Fed chair decision?
U.S. President Donald Trump flagged he would announce his pick for the next Federal Reserve chair this month, with current Chair Jerome Powell’s term ending in May. Many market participants expect Trump’s nominee to be a proponent of more rate cuts, as the president has repeatedly criticized the pace of monetary easing. This has raised concerns about central bank independence.
What are the expectations for Bank of Japan policy?
Despite two interest rate hikes by the Bank of Japan in 2025, the yen remained weak. Markets are not pricing in more than a 50% chance of another BOJ rate hike until July 2026, according to LSEG data. The currency’s proximity to a 10-month low has kept expectations alive for possible intervention by Japanese authorities.
FAQs:
Q: What was the dollar index level at the start of trading?
A: The dollar index, which measures the U.S.currency against a basket of peers, rose 0.12% to 98.37 on Friday, January 2, 2026.
Q: How much did the euro gain against the dollar in 2025?
A: The euro surged more than 13% against the U.S. dollar in 2025, marking its biggest annual rise since 2017.
Q: When will the key U.S. payrolls report be released?
A: The influential U.S. government payrolls report for December is scheduled for release on Friday, January 9, 2026.
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