New York — The U.S. dollar strengthened on the first trading day of 2026, snapping its worst annual slump since 2017 as markets positioned for a pivotal week of economic data and continued uncertainty over the Federal Reserve's future leadership and policy path.

The Dollar Index rose 0.24% to 98.48. The move follows a more than 9% decline in 2025, driven by narrowing global interest rate differentials, concerns over U.S. fiscal health, and questions about Fed independence—all factors that analysts warn remain potent for the year ahead.

A Data-Deluge Week to Set the Tone

Market focus is squarely on next week's economic releases, culminating in the January jobs report, which will provide crucial signals on the strength of the U.S. economy. "It’s going to be a time to actually do a lot of assessment," said Juan Perez of Monex USA, who also noted that the record-long government shutdown has complicated data interpretation.

Traders are currently pricing in two Fed rate cuts for 2026, more than the single reduction projected by the divided central bank at its last meeting. This divergence sets the stage for potential volatility as data unfolds.

The Looming Fed Chair Decision

Adding a significant political dimension, President Donald Trump has stated he will announce his pick for the next Fed Chair this month, with Jerome Powell's term ending in May. Markets widely expect Trump to select a candidate favoring more aggressive rate cuts, aligning with his persistent criticism of Powell's pace.

"Concerns around central bank independence will extend into 2026," Goldman Sachs strategists warned in a note, viewing the impending leadership change as a dovish risk to their interest rate forecast.

Currency Performances and Exceptions

The euro fell 0.25% against the firmer dollar, pausing after its own powerful 13% annual gain in 2025—its best year since 2017. The British pound also softened 0.18%.

The Japanese yen remained a notable outlier, weakening further to 156.91 per dollar and staying near 10-month lows. Despite two rate hikes from the Bank of Japan last year, the currency has found little sustained support, with markets not pricing in a strong chance of another hike until mid-year.

In cryptocurrencies, Bitcoin traded around $89,740, up 1.64% on the day.