Dollar Climbs to One-Week High Amid Strong Jobs Data

Daily and Yearly Snapshot: The US Dollar Index (DXY) rose to 98.304, marking its highest level in a week with a 0.09% gain on Wednesday. While the dollar has seen modest fluctuations over the past month (−1.19%) and a moderate year-to-date drop of −9.42%, its resilience today highlights continued investor confidence amid strong economic signals. Over the past year, the index has dipped around 9%, but remains up nearly 10% over a five-year horizon.

Strong Labor Market Fuels Treasury Yields

The dollar’s rise was fueled by climbing US Treasury yields after weekly jobless claims dropped by 16,000 to 199,000—well below expectations of 218,000. This demonstrates the ongoing strength of the US labor market and supports the case for potential tightening by the Federal Reserve.

Trump’s Fed Comments Cap Dollar Gains

Despite the short-term boost, gains remain limited amid concerns over the Fed’s independence, after President Donald Trump suggested he “might fire” Fed Chair Jerome Powell. Global pressures also weigh, with the Chinese yuan climbing to a two-and-a-half-year high, putting additional strain on the greenback.

Market Expectations for Rate Decisions

Markets currently price only a 15% chance of a 25-basis-point rate cut at the Fed’s next meeting on January 27–28. Looking ahead, expectations for 2026 suggest a potential 50-basis-point cut by the Fed, while the Bank of Japan may raise rates by 25 points and the European Central Bank is likely to maintain its current policy.

Divergent Global Policies Challenge the Dollar

This divergence in monetary policy weakens the dollar’s global appeal, keeping medium-term pressures in place despite today’s short-term strength. Investors will be watching closely as the currency navigates both domestic and international headwinds in the new year.