The U.S. dollar strengthened on Monday, extending the sharp gains recorded late last week after U.S. President Donald Trump nominated Kevin Warsh as the next chair of the Federal Reserve.
By 10:58 ET (15:58 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, was up 0.1% at 97.64, following a strong 1% jump on Friday.
Dollar supported by Warsh nomination
Trump’s decision to nominate Warsh boosted the dollar sharply at the end of last week, while precious metals and other risk-sensitive assets came under pressure. The move helped the greenback recover losses suffered earlier in the week.
Although investors broadly view Warsh as supportive of interest rate cuts, markets have focused on his criticism of the Federal Reserve’s expanding balance sheet. A more restrictive stance on asset holdings could ultimately reduce liquidity in the financial system, offering support to the dollar.
“The dollar is looking healthier,” analysts at ING said in a note. They added that the recent “debasement trade” behind the dollar’s earlier weakness has started to unwind since Warsh emerged as Trump’s nominee for Fed chair. ING also noted that a sharp correction in overbought precious metals has provided additional tailwinds for the greenback, while stressing that the previous dollar selloff appeared disconnected from broader macro fundamentals.
Looking ahead, markets are awaiting January manufacturing and services activity data, but attention will center on Friday’s closely watched U.S. jobs report. Economists expect nonfarm payrolls to rise by 67,000 in January, up from 50,000 at the end of last year, with the unemployment rate holding steady at 4.4%.
The Federal Reserve left interest rates unchanged last week after delivering three consecutive 25-basis-point cuts, citing signs of stabilization in the labor market. Analysts at Payden & Rygel cautioned that while policymakers are betting on stability, renewed weakness in employment data could push the Fed back toward rate cuts sooner than anticipated.
Euro steadies below 1.20
In Europe, the euro traded slightly lower, with EUR/USD at 1.1792, retreating from the 1.20 level reached last week. Data showed German retail sales rose 0.1% in December, improving from a 0.5% decline the previous month.
Meanwhile, eurozone manufacturing activity showed signs of recovery. The HCOB manufacturing PMI climbed to 49.5 in January from 48.8, edging closer to expansion territory. The European Central Bank is widely expected to keep interest rates unchanged at its policy meeting later this week.
ING said markets will be watching closely to see how concerned the ECB is about the euro’s recent strength. With EUR/USD now below the sensitive 1.20 level, the chances of a strong verbal response from policymakers appear reduced.
The British pound also edged lower, with GBP/USD at 1.3627, ahead of a Bank of England meeting on Thursday, where rates are expected to remain unchanged.
Yen weakens after Takaichi comments
In Asia, USD/JPY rose 0.6% to 155.66, following comments from Japanese Prime Minister Sanae Takaichi that appeared to downplay the likelihood of currency market intervention. Takaichi highlighted the benefits of a weaker yen during a recent campaign speech, a tone that contrasted with earlier warnings from officials about excessive currency moves.
Elsewhere, USD/CNY was little changed at 6.9447, showing limited reaction to mixed Chinese PMI data. The Australian dollar weakened, with AUD/USD down 0.3% at 0.6942, as markets focused on the outcome of a Reserve Bank of Australia meeting on Tuesday. The central bank is widely expected to raise interest rates by 25 basis points, supported by data pointing to a rebound in Australian inflation during the second half of 2025.
