The strength of the US dollar challenges market expectations: Geopolitical risks fail to shake the dollar, economic data becomes the short-term dominant factor.

In terms of the US dollar, the unexpected resilience of the US economy is overwhelming the geopolitical turbulence stirred up by US President Trump. As the new year approaches, traders have increased their bearish bets on the US dollar, believing that with the Fed cutting rates and the dollar coming under pressure again, this will prompt global investors to put their funds into higher-return markets. Trump's forceful arrest of Venezuelan leader Maduro, his declaration of sovereignty over the country's oil fields, and his threats to other countries, seem to be reigniting concerns about the security of US assets and once again dragging down the dollar. However, the dollar is ignoring these risks and strengthening. Foreign exchange traders have almost ignored Trump's latest attempts to undermine decades of global order. Instead, as data shows that the slowdown in the US job market is lower than previously feared, the market is beginning to question the extent of the Fed's rate cuts this year, causing the dollar to rise. The upward trend of the dollar this week - even if it may be just a temporary rebound - once again reflects the difficulty of predicting market direction in the Trump era. Tom Nakamura, head of fixed income and forex at AGF Investments, says, "The ground beneath us is constantly changing. No matter what outlook or judgments we have for the year, it will be very challenging to stick to them in the long term." The post-pandemic economy has repeatedly surprised analysts, with recession concerns that have persisted since 2022 failing to materialize. Trump's changing trade war policies - and now his threats to assert military dominance in the Western Hemisphere - have further increased uncertainty. This has also sparked market speculation from time to time, suggesting that Trump's actions could jeopardize the dollar's status as the global reserve currency, or lead to a reduction in global investors' allocations to US Treasury bonds. This concern peaked in April last year when Trump's tariff policies briefly plunged the market into turmoil. However, after experiencing its deepest decline since the early 1970s in the first half of 2025, the dollar stabilized in the second half of the year as Trump withdrew some tariffs and the economy continued to operate. Chris Gunster, head of fixed income at Fidelis Capital Partners, says, "The market is gradually accepting this reality - some of these shocks are temporary, and we will eventually overcome them." He adds that compared to the turbulent decline of the dollar last year, "the future dollar will be more stable." Wall Street forecasters still say that in the long run, as the Fed gradually lowers interest rates, the trajectory of the dollar will continue to weaken. Prior to January, speculative bearish bets against the dollar increased by about $210 billion, the largest monthly shift since the initial months of the pandemic in March 2020. Such a large scale of betting may give the dollar some room for a rebound as long as the job market does not sharply slow down and concerns ease. With US Treasury yields rising, the dollar has also risen, continuing to climb over the past three days. Strategists Audrey Childe-Freeman and Stephen Chiu believe, "Cyclical and interest rate differentials are likely to once again become the main DRIVERS of the forex market in 2026, but this does not mean structural factors like 'de-dollarization' and bearish trends in the dollar should be ignored." The next test will come on Friday when the US Department of Labor will release the December non-farm payroll report for last year, while the Supreme Court may also rule on the legality of Trump's comprehensive tariffs on global trading partners. A team of analysts at Citigroup led by Daniel Tobon is one of the few institutions that believe the dollar still has room to rise this year, citing the strong performance of the US economy. In a report to clients on Thursday, they stated that if job growth meets or exceeds expectations, the dollar may further strengthen on Friday. Neil Sutherland, portfolio manager at Schroders Global Investment Management, also said, "While geopolitics is important, what will truly drive the market is economic growth, inflation, and profits - and at least for now, these factors overall remain quite favorable."