Dollar Defies Trump Turmoil, Rising With Focus on the Fed’s Path

(Bloomberg) — When it comes to the dollar, the surprising resilience of the US economy is overpowering the geopolitical turmoil unleashed by President Donald Trump.

Traders ratcheted up their bets against the US currency heading into the new year, wagering it would be dragged down again as the Federal Reserve cuts interest rates, giving global investors incentive to shift cash to places where payouts are higher. Trump’s capture of Venezuelan leader Nicolás Maduro, claim to that nation’s oil fields, and threats against other countries seemed primed to give the dollar another tug lower by threatening to rekindle concerns about the safety of US assets.

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Yet it rallied right past that risk as currency traders virtually ignored Trump’s latest push to upend the decades-old global order. Instead, it trades at a one-month high as data showed the job market isn’t slowing as much as feared, casting doubt on how deeply the Fed will cut interest rates this year.

Those doubts were bolstered Friday by the release of the December jobs report, which showed a surprise decline in the unemployment rate offsetting weaker-than-expected growth in nonfarm payrolls.

The Bloomberg Dollar Spot Index was on pace for a fourth straight daily advance on Friday, touching its highest level since Dec. 10. It’s up 0.5% this week, the biggest advance since November. Options positioning has turned increasingly positive, with sentiment the most bullish since early December. The dollar on Friday also touched its strongest mark versus Japan’s yen in a year.

The dollar’s upward move this week — even if short-lived — is another example of how difficult it has been for Wall Street forecasters to predict the direction of markets in the Trump era.

“The ground shifts under our feet pretty routinely,” said Tom Nakamura, who heads fixed income and currencies at AGF Investments. “Whatever our outlook or calls are for the year, it’s going to be challenging to hang onto them for that long.”

The post-pandemic economy had already surprised analysts by defying recession fears that have flared periodically since 2022. The twists and turns of Trump’s trade war — and now his threats to exert military dominance over the Western hemisphere — have only added to the uncertainty.

That has raised periodic speculation that Trump’s moves could jeopardize the dollar’s role as the world’s dominant currency or cause global investors to pull back from US Treasury debt. That crested in April, when his tariff rollout briefly sent markets into a tailspin.

But after staging one of the deepest drops since the early 1970s during the first half of 2025, the dollar largely steadied during the second half of the year as Trump dialed back some of his tariffs and the economy chugged along.

“Markets are coming to the reality that some of these things are transient and we’ll get through it,” Chris Gunster, head of fixed-income at Fidelis Capital Partners, said in an interview. Relative to last year’s tumultuous slide in the US currency, “the dollar will be more stable going forward.”

Data released Friday showed nonfarm payrolls in the US increased by 50,000 in December versus a median expectation of 70,000. Yet the unemployment rate unexpectedly fell to 4.4%, and average hourly earnings rose 0.3%. Traders after the data see almost a zero likelihood that the Fed will cut interest rates later this month.

“The dollar will ultimately take its cue from US rates,” Valentin Marinov, head of G-10 currency strategy at Credit Agricole, said after the report. “It could benefit from any evidence that investors continue to pare back their still dovish Fed expectations.”

Wall Street forecasters still say the longer-term trend is for the dollar to drift lower as the Fed nudges rates down. Heading into January, speculative wagers against the greenback grew by some $21 billion — the largest bearish swing in a month since the onset of the pandemic in March 2020.

The scale of those bets likely left the dollar primed for a bit of a bounceback when data eased worries about a sharp slowdown in the job market. As Treasury yields drifted up, the dollar tracked it higher, rising over the past four days.

What Bloomberg Intelligence Says…

“Cyclical and carry forces are likely back as prime FX drivers in 2026, but that doesn’t mean dollar-bearish structural considerations, including de-dollarization, can be sidelined.”

-Audrey Childe-Freeman and Stephen Chiu, BI strategists

Click here to read the full report.

Another test will come Friday with a potential ruling from the US Supreme Court on the legality of the blanket tariffs Trump has slapped on trading partners around the world.

Citigroup Inc. analysts led by Daniel Tobon were among the few who said the dollar had room to gain this year due to the strength of the economy.

“Geopolitics are important,” said Neil Sutherland, portfolio manager at Schroder Investment Management. “But what is going to drive the market is going to be growth, inflation, and earnings — all of which for the time being remain pretty supportive.”

–With assistance from Vassilis Karamanis and George Lei.

(Updates with details of December jobs report, Credit Agricole comment.)