Over the past month, the US dollar has embarked on a strong, one-sided upward trend in the foreign exchange market, consistently leading major currencies. This trend is not driven by a single factor, but rather by the combined effect of robust US macroeconomic data and a flurry of hawkish comments from Federal Reserve officials, which have collectively solidified the dollar's dominance. In the week ending January 10, the number of initial jobless claims in the US unexpectedly fell to 198,000, a highly significant figure—in recent years, this number has only occasionally dipped below the 200,000 mark, and its four-week moving average has simultaneously fallen to its lowest level in two years. The continued stabilization of the labor market not only confirms the resilience of the US economy but also directly undermines the key argument of the dovish camp within the Federal Open Market Committee (FOMC) advocating for interest rate cuts, further strengthening market expectations that the Fed will maintain high interest rates.



The euro has remained weak against the dollar, declining in 11 of the past 15 trading days and currently hitting its lowest level since early December, with significant downward pressure. Credit Agricole points out that the market's previous expectation of a divergence in monetary policy between the Federal Reserve and the European Central Bank is unlikely to materialize: the Fed is highly likely to maintain current interest rates in 2026, and the significant interest rate differential between its rate and the ECB's deposit rate will become a core weapon for maintaining the dollar's strength. Bank of America further warns that if the ECB is dissatisfied with the current pace of inflation decline and believes that inflation is still deviating from its target, it may be forced to restart a monetary easing cycle to stimulate the economy and regulate inflation. This expectation will continue to put pressure on the euro, exacerbating the downward pressure on the euro against the dollar.

For euro/dollar bulls, the only potential positive factor currently seems to lie with Donald Trump – the former president has explicitly proposed lowering the federal funds rate to 1%, and if his proposals are implemented, it could reverse the dollar's strong performance. However, Trump's lawsuit against Federal Reserve Chairman Jerome Powell has severely hampered his control over Fed personnel appointments. The Fed's independence is the core foundation of global financial markets' trust in its policies, and even if Trump nominates a close associate as Fed chairman, that candidate could be rejected by the Senate due to concerns about undermining the central bank's independence, significantly reducing the likelihood of this potential positive factor materializing.

Among major global currencies recently, only the Japanese yen has managed to strengthen against the US dollar. Following Japanese Finance Minister Satsuki Katayama's public signal of potential intervention in the foreign exchange market, market concerns about the Japanese government stabilizing the yen's exchange rate intensified, causing the USD/JPY exchange rate to fall. According to sources familiar with the matter at Bloomberg, the Bank of Japan is closely monitoring the inflation-boosting effect of a weaker yen—while a weaker yen can stimulate exports, it also pushes up the prices of imported goods, significantly supporting domestic inflation. Although the market generally expects the Bank of Japan not to raise interest rates in January, the option of further tightening monetary policy remains on the policy agenda; the only difference lies in the timing. Experts generally believe that the Bank of Japan is unlikely to raise the overnight rate before July, and the pace of policy tightening will depend on the progress of inflation and economic recovery.


(US Dollar Index Daily Chart Source: FX678)

The easing of geopolitical risks also impacted asset prices. The de-escalation of tensions between Venezuela and Iran weakened the safe-haven demand for gold, putting direct pressure on prices. Simultaneously, a strong US dollar and persistently rising US Treasury yields created a double drag – a stronger dollar increased the cost of holding gold (rising the price of gold denominated in non-US currencies), while higher US Treasury yields enhanced the attractiveness of risk-free assets, diverting funds from the gold market. However, despite these multiple negative factors, gold did not experience a significant pullback, instead demonstrating strong resilience. This performance indirectly highlights its safe-haven attributes and value support in global asset allocation. Market concerns about future geopolitical uncertainties and recurring inflation provided underlying support for gold prices.