Employment data set the tone, and the consensus emerged that the Federal Reserve would "hold rates steady" in January. Multiple factors supported the dollar's rise for two consecutive weeks.
2026-01-10 07:52:11
The dollar index rose for the second consecutive week as the latest U.S. jobs data, while showing fewer new jobs than expected, revealed a decline in the unemployment rate, reinforcing market expectations that the Federal Reserve will keep interest rates unchanged this month.
Data shows that the US unemployment rate fell to 4.4% in December from 4.5% in November, but non-farm payrolls increased by only 50,000, lower than the market expectation of 60,000. This provides the Federal Reserve with room to maintain current interest rates at its meeting at the end of January. US employment is projected to increase by 584,000 in 2025 (an average of 49,000 per month), down from 2 million in 2024 (an average of 168,000 per month), the weakest increase since 2020, when the COVID-19 pandemic caused a sharp drop of 9.2 million jobs.
Federal Reserve Chairman Barkin stated that U.S. job growth in December was "moderate," indicating that companies outside of a few sectors such as healthcare and AI platform development remain reluctant to hire. The low hiring environment persists. This is partly due to uncertainty, largely a productivity issue, but it's difficult to find companies outside the AI ecosystem or healthcare industry discussing hiring.
According to the CME Group's FedWatch tool, the market currently sees a 95% probability that the Federal Reserve will hold rates steady this month. John Briggs, head of U.S. interest rate strategy at Natixis North America, pointed out that the Fed may be more focused on the downward trend in the unemployment rate than on short-term fluctuations in overall data, thus the report is slightly bearish for the U.S. interest rate outlook. This jobs report is the first "clean" data in months unaffected by temporary factors such as the government shutdown, providing a clearer basis for judging employment trends in the macroeconomy.
The market generally believes that the Federal Reserve's future interest rate decisions will depend on the performance of the labor market in the coming months. Although the Fed has cut interest rates in its last three meetings to address the weak labor market, concerns among some officials that inflation remains above target may limit the pace of further monetary easing.
Market analysts point out that unless there are stronger economic signals, the market's expectations for the Federal Reserve's policies may already be largely priced in.
The yen continued to weaken, with the dollar hitting a one-year high of 158.185 against the yen before closing up 0.64% at 157.88, marking its second consecutive week of gains.
The yen's weakness is primarily driven by domestic political uncertainty. Prime Minister Sanae Takaichi's consideration of holding a snap election in the first half of February has exacerbated market concerns about policy continuity. Meanwhile, the latest data shows that Japanese household spending unexpectedly rose year-on-year in November, indicating that domestic consumption is showing signs of acceleration ahead of the Bank of Japan's December hike of policy rates to their highest level in 30 years.
Jordan Rochester, head of fixed income, FX, and commodities strategy for the EMEA region at Mizuho Bank, analyzed that strong household spending means the Bank of Japan is technically ready to raise interest rates again in April—previously, the market generally believed that the central bank would be unlikely to take action before the spring elections. However, he also pointed out that Sanae Takaichi may be reluctant to raise rates more frequently than once every six months, as she hopes to consolidate power within the Liberal Democratic Party and suppress opposition from hawkish factions within the party through a steady policy pace.
The euro fell for the second consecutive week against the dollar, impacted by an unexpected decline in German exports in November. However, Berenberg economist Hogel Schmiding pointed out that the growth in German industrial output and manufacturing orders in November may indicate that the government's fiscal stimulus policies are beginning to take effect.
Schmidt stated that although monthly data fluctuates significantly, observing the three-month average, output increased by 0.7% and orders increased by 3.9%, suggesting that German industry may have emerged from its most difficult phase. Thanks to the stimulus package, the industrial order-to-shipment ratio has improved to its best level since August 2022.
He believes that although overseas markets still face headwinds and exports declined in November, domestic demand is gradually becoming a key driver of growth. "We expect German economic growth to gradually accumulate momentum over time," he said, predicting that Germany's economic growth rate this year will be 0.7%, higher than the 0.3% projected for 2025.
Tensions in Iran escalated on Friday as protests sparked by the currency devaluation spread across the country. Starting December 29th, panic selling gripped the Iranian currency market. The rial plummeted against the dollar from approximately 1.3 million to 1.42 million, a nearly 10% drop in a single day, wiping out almost 70% of its value. Protests erupted, the central bank governor resigned, and authorities implemented internet shutdowns on Friday to curb the spread of the protests. This resulted in a near-total disruption of domestic and international communications, with telephone calls blocked, flights canceled, and domestic news websites only intermittently accessible.
Iran's Supreme Leader Ayatollah Ali Khamenei publicly accused protesters of being instigated by US President Donald Trump, stating that rioters damaged public property and warning Tehran that it "will not tolerate anyone acting as a mercenary for foreign powers." Foreign opposition groups called for further demonstrations, with Reza Pahlavi, the exiled son of the former king, urging people to continue taking to the streets on social media. Trump responded the same day, stating that he was not considering meeting with Pahlavi and reserved his opinion on whether to support his position. The situation will be closely monitored over the weekend.
Data shows that the US unemployment rate fell to 4.4% in December from 4.5% in November, but non-farm payrolls increased by only 50,000, lower than the market expectation of 60,000. This provides the Federal Reserve with room to maintain current interest rates at its meeting at the end of January. US employment is projected to increase by 584,000 in 2025 (an average of 49,000 per month), down from 2 million in 2024 (an average of 168,000 per month), the weakest increase since 2020, when the COVID-19 pandemic caused a sharp drop of 9.2 million jobs.
Federal Reserve Chairman Barkin stated that U.S. job growth in December was "moderate," indicating that companies outside of a few sectors such as healthcare and AI platform development remain reluctant to hire. The low hiring environment persists. This is partly due to uncertainty, largely a productivity issue, but it's difficult to find companies outside the AI ecosystem or healthcare industry discussing hiring.
According to the CME Group's FedWatch tool, the market currently sees a 95% probability that the Federal Reserve will hold rates steady this month. John Briggs, head of U.S. interest rate strategy at Natixis North America, pointed out that the Fed may be more focused on the downward trend in the unemployment rate than on short-term fluctuations in overall data, thus the report is slightly bearish for the U.S. interest rate outlook. This jobs report is the first "clean" data in months unaffected by temporary factors such as the government shutdown, providing a clearer basis for judging employment trends in the macroeconomy.
The market generally believes that the Federal Reserve's future interest rate decisions will depend on the performance of the labor market in the coming months. Although the Fed has cut interest rates in its last three meetings to address the weak labor market, concerns among some officials that inflation remains above target may limit the pace of further monetary easing.
Market analysts point out that unless there are stronger economic signals, the market's expectations for the Federal Reserve's policies may already be largely priced in.
The yen continued to weaken, with the dollar hitting a one-year high of 158.185 against the yen before closing up 0.64% at 157.88, marking its second consecutive week of gains.
The yen's weakness is primarily driven by domestic political uncertainty. Prime Minister Sanae Takaichi's consideration of holding a snap election in the first half of February has exacerbated market concerns about policy continuity. Meanwhile, the latest data shows that Japanese household spending unexpectedly rose year-on-year in November, indicating that domestic consumption is showing signs of acceleration ahead of the Bank of Japan's December hike of policy rates to their highest level in 30 years.
Jordan Rochester, head of fixed income, FX, and commodities strategy for the EMEA region at Mizuho Bank, analyzed that strong household spending means the Bank of Japan is technically ready to raise interest rates again in April—previously, the market generally believed that the central bank would be unlikely to take action before the spring elections. However, he also pointed out that Sanae Takaichi may be reluctant to raise rates more frequently than once every six months, as she hopes to consolidate power within the Liberal Democratic Party and suppress opposition from hawkish factions within the party through a steady policy pace.
The euro fell for the second consecutive week against the dollar, impacted by an unexpected decline in German exports in November. However, Berenberg economist Hogel Schmiding pointed out that the growth in German industrial output and manufacturing orders in November may indicate that the government's fiscal stimulus policies are beginning to take effect.
Schmidt stated that although monthly data fluctuates significantly, observing the three-month average, output increased by 0.7% and orders increased by 3.9%, suggesting that German industry may have emerged from its most difficult phase. Thanks to the stimulus package, the industrial order-to-shipment ratio has improved to its best level since August 2022.
He believes that although overseas markets still face headwinds and exports declined in November, domestic demand is gradually becoming a key driver of growth. "We expect German economic growth to gradually accumulate momentum over time," he said, predicting that Germany's economic growth rate this year will be 0.7%, higher than the 0.3% projected for 2025.
Tensions in Iran escalated on Friday as protests sparked by the currency devaluation spread across the country. Starting December 29th, panic selling gripped the Iranian currency market. The rial plummeted against the dollar from approximately 1.3 million to 1.42 million, a nearly 10% drop in a single day, wiping out almost 70% of its value. Protests erupted, the central bank governor resigned, and authorities implemented internet shutdowns on Friday to curb the spread of the protests. This resulted in a near-total disruption of domestic and international communications, with telephone calls blocked, flights canceled, and domestic news websites only intermittently accessible.
Iran's Supreme Leader Ayatollah Ali Khamenei publicly accused protesters of being instigated by US President Donald Trump, stating that rioters damaged public property and warning Tehran that it "will not tolerate anyone acting as a mercenary for foreign powers." Foreign opposition groups called for further demonstrations, with Reza Pahlavi, the exiled son of the former king, urging people to continue taking to the streets on social media. Trump responded the same day, stating that he was not considering meeting with Pahlavi and reserved his opinion on whether to support his position. The situation will be closely monitored over the weekend.
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