2026-01-02T07:08:00+00:00
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Shafaq News
The U.S. dollar made a feeble start to 2026 on Friday
after struggling against most currencies last year, while the yen steadied near
a 10 month low as traders awaited economic data to predict how central bankers
direct interest rates this year.
A narrowing interest rate difference between the U.S.
and other economies cast a shadow over the market last year, resulting in most
currencies gaining sharply against the dollar, with the Japanese yen an
exception.
Worries about the U.S. fiscal deficit, a global trade
war and concern about Federal Reserve independence took a toll on the
greenback, and those issues are likely to linger into 2026.
The euro was steady at $1.1752 on the first trading
day of the year after surging 13.5% last year, while sterling last bought
$1.3473 following a 7.7% increase in 2025. Both clocked their steepest annual
increases since 2017.
Markets in Japan and China were closed on Friday,
making for light trading volume and little movement.
DWINDLING DOLLAR DOMINANCE
The dollar index , which measures the U.S. currency
against six other units, was at 98.186 after registering a 9.4% decline in
2025, its biggest drop in eight years.
“We have seen the peak in dollar supremacy,”
said Kyle Rodda, senior market analyst at Capital.com. Even so, there has not
been two consecutive years of decline in the dollar index for two decades, he
said.
“I believe its demise has been overstated and
that the relative strength of the U.S. economy will mean we see it bounce back
this year.”
Economic data including U.S. payrolls and jobless
figures are due next week, providing clues on the health of the labour market
and where the Fed’s policy rate may end up this year.
Much of the focus at the start of the year will be on
who U.S. President Donald Trump picks to be the next Fed chair as the term of
current head Jerome Powell ends in May.
Investors are bracing for Trump’s pick to be more
dovish and cut rates after the president repeatedly criticised Powell and the
Fed for not cutting rates more swiftly or deeply.
Traders are pricing in two cuts this year compared to
one projected by a currently divided Fed board.
“We expect that concerns around central bank
independence will extend into 2026, and see the upcoming change in Fed
leadership as one of several reasons why risks around our Fed funds rate
forecast skew dovish,” Goldman strategists said.
YEN REMAINS THE EXCEPTION
The yen was at 156.85 per U.S. dollar after rising
less than 1% against the greenback in 2025. It hovered close to the 10 month
low of 157.90 touched in November that drew policymaker attention and raised
the prospect of intervention.
The Bank of Japan hiked interest rates twice in last
year but that did little to improve yen performance as the cautious pace
frustrated investors, with speculators reversing significant long yen positions
held in April.
There has also been growing investor unease about
fiscal expansion under Prime Minister Sanae Takaichi, though she has sought to
ease some of that concern.
Traders are pricing the next BOJ rate hike as being
toward the end of 2026. Min Joo Kang, senior economist at ING, expects the most
likely timing to be October.
“A further fiscal push could backfire on the
economy, but the current government is expected to maintain its expansionary
policy stance, posing a significant risk to the economy in 2026,” Kang
said in a client note.
The Australian and New Zealand dollars started the new
year on the front foot. The Aussie was 0.35% higher at $0.66975 after a nearly
8% rise in 2025, its strongest yearly performance since 2020.
The kiwi snapped its three-year losing streak with a
nearly 3% gain last year. On Friday, it firmed a touch to $0.5761.
(Reuters)
Only the headline is edited by Shafaq News Agency.
