The US dollar began its first full trading week of 2026 by climbing to multi-week highs against a range of currencies, following a weak performance in December, as attention turns to a slate of key US economic data due later this week.
Traders were also closely watching developments in Venezuela, following a US raid and the arrest of President Nicolás Maduro.
US President Donald Trump told reporters on Sunday that he could order another strike if US efforts to open Venezuela’s oil sector and halt drug trafficking fail. He also hinted at possible military action against Colombia and Mexico.
Against a tense geopolitical backdrop, the dollar posted modest gains. However, analysts said it is still too early to conclude that the move is sustainable. The US monthly jobs report, due on Friday, is seen as a decisive factor in shaping monetary policy expectations — and as having a greater influence on the dollar than geopolitical developments.
Macroeconomics outweigh geopolitics for now
The dollar index rose for a fifth consecutive session, gaining 0.25% to reach its highest level since December 10, driven mainly by euro weakness. The euro fell 0.31% to $1.16845, its lowest level since the same date. The dollar index had declined 1.2% in December, marking its weakest monthly performance since August.
Jeremy Stretch, head of G10 FX strategy at CIBC Markets, said: “While we do see this geopolitical risk, I don’t think we should get stuck on it. We’ll very quickly get back to macro reality, because there’s a torrent of US data through the course of this week.”
He added: “Often, the first move in FX following a big event is the wrong one. I’m not saying it’s wrong here, but I do think this dollar strength could be vulnerable to correction if we see signs of fragility in the employment data.”
Stretch noted that a recent run of strong US economic releases has pushed markets to consider a slower pace of interest rate cuts this year.
This week’s data releases begin with the Institute for Supply Management manufacturing survey on Monday and conclude with the monthly nonfarm payrolls report on Friday.
Kyle Rodda, senior financial markets analyst at Capital.com, said: “I would argue that FX markets are not really pricing in the risks from Venezuela so much as what the US data will reveal about the Federal Reserve’s policy path.”
Traders are currently pricing in two US interest rate cuts this year, according to calculations by LSEG based on futures pricing.
US rate cuts still in focus
Investors are also awaiting Trump’s pick for the next Federal Reserve chair, with Jerome Powell’s term set to expire in May. Trump has said he will announce his choice this month, indicating the successor would be “someone who believes in lower interest rates… by a lot.”
In Japan, Bank of Japan Governor Kazuo Ueda said on Monday that the central bank would continue raising interest rates if economic conditions and price developments evolve in line with its forecasts. He has repeated this stance several times in recent months, including after December’s widely expected rate hike to the highest level in three decades.
The dollar was steady against the Japanese yen at 156.81, rose 0.34% against the Swiss franc to 0.795, and gained around 0.2% against both the Australian and New Zealand dollars.
