The US Dollar is experiencing a lot of uncertainty due to geopolitical tensions and issues with the Federal Reserve. Although it made some gains, the US Dollar Index closed the week at about 99.30, which is a monthly high. Soon, we can expect important US data releases like the ADP Employment Change, Initial Jobless Claims, and PCE, which is a crucial inflation measure for the Federal Reserve. The US Dollar performed differently against major currencies, being strongest against the Australian Dollar. It had a slight decline of -0.02% against the Euro and increased by 0.11% against the Japanese Yen. Next week, the Eurozone and the UK will release important economic indexes, while the USD/JPY pair remains stable as the Bank of Japan gets ready to make a policy decision. The USD/CAD is also quiet, awaiting Canadian CPI data.

Monetary Policies And Global Influences

In Davos, key speeches by Swiss National Bank President Schlegel and US President Trump are coming up. Central banks around the world will impact monetary policies with data expected from China, Canada, the UK, Australia, the US, and New Zealand. The Bank of Japan’s interest rate decision will also be a key focus in the upcoming week. Looking back to the end of 2025, we recall a shaky time for the US Dollar, marked by geopolitical tensions and Federal Reserve challenges. The market was uncertain and awaited a clear signal about the economy. That signal came in the form of inflation data released a couple of weeks later. The main releases we focused on, like the US Personal Consumption Expenditures (PCE) data for late 2025, came in higher than expected. For example, Core PCE, closely watched by the Fed, showed a persistent 4.1% year-over-year in November 2025. This data kept the Fed from hinting at a softer policy, reinforcing expectations that interest rates would need to stay higher for longer than the market anticipated. As a result, the US Dollar Index (DXY), which was around 99.30 at that time, has since risen and is now holding steady around 103.50. Traders in derivatives may want to consider this strength by buying call options on the dollar or selling put options on currencies like the Euro. This approach bets on the dollar’s continued strength as long as US inflation stays high compared to other countries.

Interest Rate Decisions And Market Impact

Similarly, the Eurozone’s HICP inflation figures have remained sticky, but the European Central Bank’s response seems to be less aggressive compared to the Fed. This difference in policy has contributed to the decline of EUR/USD from about 1.1620 at the end of 2025 to around 1.1380 now. It looks like the most likely trend is still downward for this pair. In Japan, the Bank of Japan kept its very easy monetary policy unchanged during its late 2025 meetings, widening the interest rate gap with the US. As a result, the USD/JPY pair has risen past 158.00 and is now testing the 160.00 level. Traders should be cautious about opposing this trend since selling yen has been a popular strategy. Gold prices surged to over $4,600 an ounce due to inflation and geopolitical concerns during that time. However, as the Federal Reserve has reaffirmed its tough stance on inflation, the allure of non-yielding gold has decreased somewhat, and prices have pulled back to about $4,570. Traders might consider buying protective puts on gold if they believe the Fed will continue its assertive approach in the coming months. Create your live VT Markets account and start trading now.

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