The dollar exhibited stability on Thursday as market participants assessed a range of data indicating that the U.S. economy is in a precarious state ahead of an important jobs report on Friday, while escalating geopolitical tensions maintained a cautious sentiment. The euro maintained its position at $1.1678 during early Asian trading hours, indicating a slight weekly decline, while the pound was valued at $1.34605. The yen held steady at 156.78 against the U.S. dollar, with traders showing caution in making significant moves. The Australian dollar traded at $0.6721, slightly under the 15-month peak it reached earlier this week, while the New Zealand dollar remained relatively stable at $0.5769.
Data released on Thursday indicated that the U.S. labor market seems to be in a “no hire, no fire” condition, as job openings declined more than anticipated in November, accompanied by a slowdown in hiring. The services sector activity, though unexpectedly increased in December, indicates that the economy concluded 2025 on a robust note. The focus will now shift to the highly anticipated nonfarm payrolls report set to be released on Friday. “The latest U.S. data releases paint a mixed picture of the economy,” stated Lloyd Chan. “For the Fed, this combination of signals may support a prudent stance.”
Market participants are anticipating a minimum of two rate reductions from the Federal Reserve this year, despite a split central bank signaling in December that only one additional cut is expected for 2026. Market participants widely anticipate that the Federal Reserve will maintain its current interest rates in January. The dollar index, which assesses the U.S. currency relative to six competitors, remained stable at 98.737 and is poised for a modest weekly increase. The dollar is emerging from its most challenging annual performance since 2017, with projections indicating another year of decline, though a more tempered decrease is anticipated. “We might not see as many Fed rate cuts as expected in 2026, mainly because the country’s robust growth does not justify aggressive cutting,” said Matthias Scheiber. A potential shift in ideology towards a more pro-growth strategy in determining interest rates is on the horizon. Nevertheless, the Federal Reserve must exercise caution in articulating its perspective and approach regarding the balance between growth and persistent inflation.
The markets have largely absorbed the geopolitical concerns worldwide, following the U.S. involvement in Venezuela and the escalating tensions between China and Japan this week, with currencies remaining relatively stable throughout the week. Prashant Newnaha, a senior rates strategist for the Asia-Pacific region at TD Securities, indicated that a key factor influencing the dollar will be a potential Supreme Court ruling regarding U.S. President Donald Trump’s tariff policies this Friday. Speculation has intensified regarding the possibility that the decision may be announced as early as Friday, following the Supreme Court’s scheduling of that day for rulings. The court does not provide advance notice regarding the rulings it plans to issue. If a ruling determines that the tariffs are constitutional, it eliminates the possibility of seeking refunds. “This would be USD positive,” Newnaha stated.