The US dollar's strength into 2026 remains largely intact, despite a slight setback on Friday after the release of December labor market statistics that rendered mixed signals. While non-farm payroll numbers increased by only 50,000, falling short of the 66,000 jobs anticipated by analysts, the unemployment rate unexpectedly declined to 4.4%, coupled with continued wage growth. This combination suggests a labor market resilient enough to maintain current Federal Reserve policy expectations without encouraging a dovish shift.
Rather than an alteration of trend, the recent labor data prompted more of a tactical adjustment in positioning for the dollar. This is evident as the benchmark 10-year US Treasury yield struggled to push above the key resistance level near 4.2%, reflecting market ambivalence about future interest rate movements.
Internationally, the Canadian dollar ended the week as the weakest among major currencies. Despite employment growth surpassing forecasts, a significant rise in Canada's unemployment rate to 6.8% highlights a growing disparity between labor supply and demand. In the Eurozone, both the Euro and Swiss Franc faced persistent downward pressure. Retail sales figures in the region showed only marginal improvement, insufficient to alter the prevailing narrative of sluggish economic growth.
Among other majors, the Australian dollar and the British pound sterling managed to sustain their levels, emerging as the primary challengers to the US dollar’s prevailing dominance. This stability in the AUD and GBP contrasts with pressures seen in other global currencies.
Beyond currency fundamentals, geopolitical tensions within South America coupled with a technology-driven equity rally supported by significant announcements at the Consumer Electronics Show (CES) provided a favorable backdrop for risk-sensitive assets. Still, the dominant factor influencing foreign exchange markets has been the recalibration of perceived interest rate trajectories by central banks.
China's inflation data offered a mixed perspective. Although there was a selective upside surprise, the overall Consumer Price Index for the full year remained flat. This outcome sustains the deflationary risks that persist across the broader Asia-Pacific economic region, signaling ongoing challenges despite localized improvements.
Currency Pairs Under Scrutiny
AUD-CAD
In 2026, the Australian dollar versus Canadian dollar currency pair broke out of a consolidation phase that had persisted since late September. Last Friday, the pair’s pullback to the former resistance level near 0.92580 was met with rejection, indicating that this level is now acting as support. As long as this support holds steady, the likely scenario is an upward continuation targeting the next significant resistance zone around 0.95450.
GBP-SGD
The British pound against the Singapore dollar opened the year with an unsuccessful attempt to surpass the critical 1.73800 level. Momentum has since waned, culminating in a pronounced decline towards the end of last week. Provided that Friday's high remains intact, the prevailing expectation is for further downward pressure, possibly revisiting support near 1.71100.
Looking Forward: Key Economic Indicators and Market Events
Attention is shifting from the labor market toward inflation metrics in the coming week, with the release of December's Consumer Price Index and Producer Price Index in the United States. These reports will be pivotal in assessing the potential for the US dollar to reassert its momentum after recent fluctuations.
Additionally, the start of the earnings season will be closely watched. This period is traditionally kicked off by major US financial institutions, including JPMorgan Chase and Bank of America. Their results will offer important insights into broader market risk sentiment and economic health.
Market participants will also be monitoring a series of Federal Reserve officials' speeches and the publication of the central bank’s Beige Book. These communications could provide critical clues about the Fed’s inclination towards any rate adjustments, especially the prospect of interest rate cuts in the near term.
Conclusion
While the US dollar demonstrated resilience throughout the early part of 2026, mixed labor data domestically along with uneven economic signals internationally inject uncertainty into its near-term trajectory. The full implications of recent employment and inflation releases, alongside corporate earnings outcomes and central bank commentary, will determine whether the greenback can sustain or extend its current strength in currency markets.