The US Dollar (USD) started the week strong, thanks to President Trump’s nomination of Kevin Warsh as the new Fed Chair. This boost also comes after better-than-expected manufacturing data from ISM.
Traders are now less likely to expect more rate cuts from the Fed this year due to signs of stronger economic growth. It is assumed that any future cuts could weaken the dollar in 2026.
Gold prices have bounced back from a January 6 low, trading above $4,900 with a daily increase of about 6%. In addition, Hyperliquid’s sector saw an 8% gain due to a new proposal affecting prediction markets.
Japan is getting ready for snap elections on February 8, 2026, which is different from the usual election schedule. This could lead to a change in political priorities under tighter fiscal scrutiny.
Zilliqa (ZIL) jumped over 20% to $0.006, following a 34% increase ahead of the Cancun EVM upgrade. This upgrade has improved market sentiment for ZIL, even amid a generally weak cryptocurrency market.
The USD’s strong performance at the week’s start is attributed to Warsh’s nomination as Fed Chair, reducing uncertainty and indicating a more aggressive approach from the central bank. With positive economic data, the case for a stronger dollar is growing.
Recently, market expectations for Federal Reserve rate cuts have decreased. The January ISM Manufacturing PMI reported a stronger-than-expected 51.2, showing growth in manufacturing. This robust growth complicates the Fed’s potential case for lowering interest rates soon.
Our earlier forecasts for dollar weakness in 2026 were based on the assumption of multiple Fed rate cuts. With new information, those assumptions may no longer apply. Positions that profit from a falling dollar, like short USD futures or long EUR/USD call options, could face major challenges.
Looking back at 2025, the market view changed from keeping rates above 5% to anticipating significant cuts in early 2026. This consensus, which influenced much trading late last year, is now being reconsidered. The market is adjusting its expectations accordingly.
In the coming weeks, traders should look to position themselves for continued dollar strength, particularly against currencies where central banks are likely to remain cautious. Strategies might include buying call options on the dollar index (DXY) or selling euro futures contracts. The current climate favors strategies that benefit from a rising US dollar.
Be prepared for increased currency volatility as the market adjusts to this fundamental shift. The re-evaluation of interest rate expectations will likely create wider trading ranges in major currency pairs. This scenario could benefit derivative strategies that thrive on price fluctuations, such as long straddles, especially around upcoming economic data releases.
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