Dollar starts 2026 firmer

The US dollar began 2026 stronger on Friday, snapping last year's slump against most currencies as investors look ahead to a critical week of economic data that could steer Federal Reserve policy and global markets.

The rebound follows the sharpest annual decline since 2017 of more than 9 percent, driven by narrowing interest-rate gaps with other economies and persistent worries over US fiscal health, a global trade war and Fed independence — risks that remain in play this year.

Next week's data deluge, capped by next Friday's payrolls report, is expected to offer clues on whether the Fed will cut rates further, with markets already pricing in two reductions versus one projected by a divided central bank.

"It's going to be a time to actually do a lot of assessment, we won't have the Fed meeting until the end of the month, but there's no consensus," said Juan Perez, director of trading at Monex USA in Washington.

"This past US government shutdown was unprecedented and inconceivably long, so it really affected the way that data has been taken, has been interpreted, and has been able to really be gauged or taken as fully accurate."

Markets in Japan and China were closed on Friday, leading to thin trading volume.

The dollar index , which measures the greenback against a basket of currencies, rose 0.24 percent to 98.48, with the euro down 0.25 percent at $1.1716.

Euro zone manufacturing activity fell in December to its weakest in nine months, a survey showed. The currency surged more than 13 percent last year, its biggest annual rise since 2017.

Sterling weakened 0.18 percent to $1.3445 following a 7.7 percent increase in 2025, also its biggest yearly jump since 2017.

Investors will also be eyeing whom US President Donald Trump chooses to be the next Fed chair as the term of current head Jerome Powell ends in May.