The U.S. dollar extended its recent uptick on Monday, following a sharp end-of-week rally that accompanied President Donald Trump’s selection of Kevin Warsh as his nominee for Federal Reserve chair.
At 04:30 ET (09:30 GMT) the Dollar Index, which tracks the greenback against a basket of six currencies, was trading 0.2% higher at 97.010, after a 1% advance on Friday. That move left the currency noticeably firmer after earlier losses last week.
Why Warsh’s nomination matters
Markets reacted to Mr. Warsh’s nomination with a rotation out of risk assets and precious metals and into the dollar late last week. While many investors interpret Warsh as more disposed to lower rates, his past criticism of the Federal Reserve’s expansion of its balance sheet has driven speculation that a future Fed under his leadership could pursue a smaller central-bank footprint, which market participants say could trim the effective money supply.
Analysts at ING encapsulated this shift, saying: "The dollar is looking healthier. The de-basement trade that seemed primarily behind the USD plunge of the past week has started to unwind since Kevin Warsh became U.S. President Donald Trump’s nominee for Federal Reserve Chair." ING also noted that the pullback in overbought precious metals may be lending additional support to the dollar, adding that the prior USD drop had appeared disconnected from the macro story.
Economic calendar and Fed context
This week’s releases include manufacturing and services activity readings for January, but attention will be centered on Friday’s closely watched official monthly nonfarm payrolls report. Consensus expectations are for nonfarm payrolls to have risen by 67,000 in January, up from 50,000 at the end of last year, with the unemployment rate anticipated to remain at 4.4%.
The timing of that report matters for monetary policy. The Federal Reserve left the fed funds rate unchanged last week after three straight 25-basis point cuts, citing that "the unemployment rate has shown some signs of stabilization." Investment adviser Payden & Rygel warned of the policy risk that remains: "Policymakers are betting on stability - but if the story breaks, further labor market deterioration could push the Fed back toward rate cuts sooner than expected."
European FX and data
The euro has eased back from last week’s near-1.20 levels and traded largely unchanged at 1.1850 against the dollar. Earlier data showed German retail sales edged up 0.1% in December from the prior month, a modest improvement after a 0.5% decline in the previous period. Eurozone manufacturing indicators also showed a small improvement: the HCOB manufacturing PMI rose to 49.5 in January from 48.8, moving closer to the break-even 50 level but still below it.
Markets are watching how the European Central Bank interprets the euro’s moves at its policy meeting later this week. ING commented that the drop in EUR/USD from the much-feared 1.20 reduces the chance of an overtly vocal response from ECB officials, although any emphasis was more likely to appear in post-meeting commentary or later minutes.
GBP/USD was largely flat at 1.3790 as the Bank of England is also expected to hold rates steady at its policy meeting on Thursday.
Asian currencies and central bank focus
In Asia, the yen slipped after remarks from Prime Minister Sanae Takaichi. USD/JPY traded 0.2% higher to 155.00 following comments that appeared to downplay the likelihood of immediate currency intervention from Tokyo. Takaichi had praised the benefits of a softer currency during a campaign speech, a contrast with prior signals from government figures warning against prolonged weakness and prompting fears of intervention.
Elsewhere in the region, USD/CNY showed little reaction to mixed Chinese purchasing managers index data for January and traded largely unchanged at 6.9515. AUD/USD fell 0.2% to 0.6950 as market attention turned to the Reserve Bank of Australia meeting concluding on Tuesday, where the RBA is widely expected to raise rates by 25 basis points. Expectations for a hike were driven in part by data indicating a pickup in Australian inflation through the second half of 2025.
Outlook
The dollar’s recent strengthening reflects a mix of political signaling around U.S. central bank leadership and evolving macroeconomic data across regions. Investors and policymakers will be closely parsing the US jobs report and central bank decisions from Europe, the UK, Australia, and commentary from Japanese officials for cues on future currency and interest-rate paths.
Given the compressed policy environment and the range of upcoming data releases, market participants will be sensitive to any surprises that could shift expectations for rate trajectories and central bank balance-sheet policies.