Future Pressures the U.S. Dollar May Continue to Encounter

Mixed Jobs Data Lifts the Dollar, but Concerns Linger: The U.S. dollar rebounded on Friday after employment data showed a mixed picture, with uneven trends in job creation, unemployment, and wage growth. While the figures provided short-term support for the currency, they failed to fully dispel broader concerns about the dollar’s medium- to long-term outlook.


Rate-Cut Expectations Weigh on the Greenback

Despite recent gains and positive year-to-date performance, the dollar continues to face structural headwinds. Markets are increasingly pricing in Federal Reserve interest-rate cuts totaling around 50 basis points in 2026, a shift that could erode the dollar’s yield advantage and dampen investor demand.


Global Policy Divergence Narrows Rate Differentials

Monetary policy expectations outside the United States are also becoming less supportive for the dollar. The Bank of Japan is widely expected to raise interest rates by 25 basis points, while the European Central Bank is seen keeping rates unchanged. This evolving policy landscape may reduce interest-rate differentials that have historically favored the U.S. currency.


Rising Liquidity Adds to Downside Risks

Further pressure is coming from increased liquidity in financial markets. Since mid-December, the Federal Reserve has been purchasing roughly $40 billion per month in Treasury bills, expanding dollar supply and potentially limiting upside for the currency.


Political Uncertainty Clouds the Outlook

Political considerations are adding another layer of uncertainty. Markets are increasingly wary that President Donald Trump may appoint a more dovish Federal Reserve chair, a move that could be seen as negative for the dollar. Trump has indicated that his selection will be announced in early 2026, fueling speculation about a shift toward a more accommodative policy stance.


Overall Outlook

Taken together, these factors suggest that while the U.S. dollar may remain supported in the near term, it is likely to continue facing sustained pressures as 2026 unfolds.