Global currencies build on 2025 gains against the dollar amid anticipation of US data releases and Federal Reserve signals
The US dollar began 2026 on a weak note on Friday, following a challenging 2025 against most major currencies. The Japanese yen remained near a 10-month low as investors awaited key economic data to gauge how central banks may adjust interest rates this year.
Last year, narrowing interest rate gaps between the US and other economies pressured the dollar, allowing most currencies to rise sharply, with the yen as a notable exception. Concerns over the US fiscal deficit, global trade tensions, and Federal Reserve independence also weighed on the greenback, and these issues are expected to persist into 2026.
The euro stood steady at $1.1752 after a 13.5% surge in 2025, while sterling was last at $1.3473 following a 7.7% rise, marking their strongest annual gains since 2017. Trading volumes were light as markets in Japan and China remained closed on Friday.
The dollar index, measuring the US currency against six major peers, was at 98.186 after a 9.4% drop in 2025—the largest decline in eight years. Analysts note that while the dollar may have peaked, the strength of the US economy could support a rebound this year.
Investors are closely watching upcoming US payroll and jobless data for insight into the labor market and potential Fed rate moves. Additionally, attention is on President Donald Trump’s choice for the next Federal Reserve chair, as Jerome Powell’s term ends in May. Expectations lean toward a more dovish pick, with markets pricing in two rate cuts this year compared to one previously projected.
The yen traded at 156.85 per dollar, near its 10-month low of 157.90 reached last November. Despite two interest rate hikes by the Bank of Japan in 2025, the yen saw minimal improvement, and investor caution persists amid potential fiscal expansion under Prime Minister Sanae Takaichi. The next rate hike is likely toward the end of 2026, possibly in October. The Australian and New Zealand dollars began the year on a positive note. The Australian dollar rose 0.35% to $0.66975 after a near 8% gain last year, its strongest since 2020. The New Zealand dollar gained slightly to $0.5761, snapping a three-year losing streak with a nearly 3% rise in 2025.