The US dollar opened the week on a firm footing, extending the sharp rebound seen late last week after President Donald Trump nominated Kevin Warsh to become the next Chair of the Federal Reserve. The announcement triggered a broad reassessment across global financial markets, lifting the greenback while pressuring risk assets and precious metals.
The US Dollar Index (DXY), which measures the currency against a basket of six major peers, rose 0.2% to 97.010, building on a 1% surge on Friday. Investors are rapidly recalibrating expectations for US monetary policy, with the prospect of a more conservative Fed leadership driving renewed demand for the dollar.
Kevin Warsh, a former Fed governor, is widely regarded as a policymaker focused on inflation control and balance-sheet discipline. While markets still expect that he could tolerate future rate cuts if economic conditions require them, his historical criticism of aggressive quantitative easing has raised concerns about tighter liquidity ahead.
Analysts at ING noted:
“The dollar is looking healthier. The de-dollarization trade that weighed on USD last week has started to reverse since Kevin Warsh emerged as President Trump’s pick for Fed Chair.”
The correction in overbought precious metals has also indirectly supported the dollar, reinforcing its appeal as a defensive asset amid policy uncertainty.
Beyond the political dimension, traders are now turning their attention to the upcoming non-farm payrolls (NFP) report due on Friday—arguably the most important data release of the month.
Economists expect 67,000 new jobs in January, up from 50,000 in December.
The unemployment rate is forecast to remain at 4.4%.
Last week the Federal Reserve kept its benchmark rate unchanged after three consecutive 25-basis-point cuts, citing signs of stabilization in the labor market. However, Payden & Rygel warned:
“Policymakers are betting on stability, but further labor-market deterioration could push the Fed back toward earlier rate cuts.”
As a result, near-term dollar direction will hinge more on hard economic data than on political headlines alone.
The EUR/USD pair traded little changed around 1.1850, after retreating from last week’s peak near 1.20. Economic data from the euro area offered modest encouragement:
German retail sales rose 0.1% in December, reversing the prior month’s 0.5% decline.
The eurozone HCOB manufacturing PMI improved to 49.5, edging closer to expansion territory.
The European Central Bank is expected to keep rates unchanged at its meeting later this week. ING believes the ECB may avoid strong verbal intervention now that EUR/USD is no longer above 1.20, though post-meeting comments will be closely scrutinized.
The British pound was steady near 1.3790 USD ahead of Thursday’s Bank of England meeting. Markets anticipate no immediate policy change, but guidance on inflation and growth will shape expectations for the remainder of the year.
In Asia, USD/JPY climbed 0.2% to 155.00 following remarks from Japanese Prime Minister Sanae Takaichi that appeared to soften the likelihood of near-term currency intervention.
Takaichi highlighted some benefits of a weaker yen for exports, a tone that contrasted with earlier government warnings about excessive volatility. The comments reduced expectations that Tokyo would step in aggressively to support the currency.
USD/CNY remained broadly flat at 6.9515, with little reaction to China’s mixed PMI data.
AUD/USD slipped 0.2% to 0.6950 as traders awaited the Reserve Bank of Australia meeting.
The RBA is widely expected to raise rates by 25 basis points, driven by signs that Australian inflation re-accelerated in the second half of 2025. Any hawkish surprise could provide short-term relief for the Aussie, though the dominant US dollar trend remains a headwind.
Many strategists argue that the dollar may be at the start of a renewed appreciation phase, supported by three key pillars:
A more cautious Fed outlook under Kevin Warsh.
Global flight to safety away from risk assets.
Relative economic resilience in the United States versus Europe and Japan.
However, risks remain. A weak jobs report or faster-than-expected disinflation could force the Fed to pivot dovish again, undermining the dollar’s recovery.
Market participants are watching several technical thresholds:
DXY resistance: 97.5–98.0
EUR/USD support: 1.1800
USD/JPY resistance: 156.00
Volatility is likely to stay elevated as central-bank meetings and US employment data converge in the same week.
Currency experts recommend a cautious approach:
Avoid over-leveraged positions ahead of the NFP report.
Diversify exposure across safe-haven assets.
Monitor central-bank communication rather than relying solely on political narratives.
The current environment favors tactical trading over long-term directional bets.
The nomination of Kevin Warsh as Fed Chair has injected fresh momentum into the US dollar, reshaping expectations for monetary policy and reverberating across global currency markets. While the greenback enjoys renewed strength, its sustainability will depend on upcoming economic data and the tone adopted by major central banks.
For now, the dollar remains in the driver’s seat, but the road ahead is lined with event risks that could quickly change the narrative.
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