The US private sector added 22,000 jobs in January, falling short of the expected 48,000. However, the ISM Services PMI held steady at 53.8, slightly better than the anticipated 53.5. President Trump signed a bill that ended the partial government shutdown, providing some relief. He also announced plans to talk with Iran in Oman. The US Dollar Index (DXY) is close to 97.70, despite mixed data. Notably, the Prices Paid Index rose to 66.6, while the Employment Index dropped from 51.7 to 50.3.

US Dollar Dominance

The US Dollar showed strong performance against the New Zealand Dollar. The AUD/USD pair fell to about 0.6970, influenced by a strong USD and an interest rate hike from the RBA. The EUR/USD pair remains around 1.1800, with the ECB likely to keep interest rates steady ahead of an upcoming announcement. Currently, USD/CAD is trading at about 1.3680, while GBP/USD is at 1.3640, both awaiting central bank decisions. USD/JPY has risen to a seven-day high of 156.70, showcasing the USD’s strength against all major currencies. Gold has stabilized at around $4,908 following the end of the government shutdown and easing tensions in global affairs. Looking ahead, important economic data releases and monetary policy decisions from the Bank of England and the European Central Bank are on the horizon. Reflecting on this time in 2025, we observed the US Dollar strengthen even with mixed signals like a disappointing private jobs report. The resolution of the government shutdown boosted the Dollar Index (DXY) toward 97.70. This showed a trend where the dollar could rise as domestic uncertainties were resolved.

Inflationary Pressures And Economic Outperformance

Today’s labor market is vastly different, and this should guide our strategy. The ADP report indicated only 22,000 jobs added in January 2025, but January 2026 brought a stunning Non-Farm Payrolls report with 353,000 jobs added, far exceeding expectations. This improved economic strength supports the Federal Reserve’s hawkish stance and a stronger dollar. The Dollar Index now trades firmly above 104, a significant rise from the previous year’s 97.70 level. For derivative traders, this sustained strength suggests that buying call options on the USD against currencies with weaker outlooks is a sound strategy. The dollar’s yield advantage, with the Fed Funds rate between 5.25% and 5.50%, makes it costly to bet against. Inflationary pressures have been a key focus of the Federal Reserve over the past year. While headline CPI has dropped to about 3.1%, it remains above the Fed’s target. This continues to reinforce the expectation of “higher for longer” interest rates, making volatility options appealing around major inflation data releases. The gap between major economies is clearer now. In February 2025, EUR/USD was near 1.1800 despite weak inflation data; today, it struggles to stay close to 1.0700. This pattern over the past year makes bearish strategies, like buying puts on the EUR/USD, a logical choice, especially as the US economy outperforms the Eurozone. Similarly, other currency pairs reflect dollar strength. AUD/USD, which was near 0.6970 then, now trades around 0.6500, affected by global growth concerns despite the RBA’s initiatives. The consistent theme is that the resilient US economy supports long dollar positions through futures or options. Last year, the focus was on resolving domestic political issues, while today it’s on the Fed’s data-driven policy. We should expect that any upcoming data suggesting the US economy remains strong will boost dollar strength further. Therefore, positioning for ongoing high interest rates and a strong dollar is advisable in the coming weeks. Create your live VT Markets account and start trading now.

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