Dollar Climbs Despite Trump Unrest, Attention Turns to Fed’s Next Moves

US Dollar Defies Political Upheaval Amid Economic Strength

Despite ongoing global tensions linked to President Donald Trump's actions, the US dollar has shown remarkable resilience, buoyed by the unexpected robustness of the American economy.

At the start of the year, many traders increased their short positions on the dollar, anticipating that interest rate cuts by the Federal Reserve would prompt investors to seek higher returns elsewhere. However, the currency has managed to withstand these pressures.

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Recent moves by Trump, including the apprehension of Venezuelan leader Nicolás Maduro, claims over Venezuelan oil, and threats toward other nations, were expected to undermine confidence in US assets and weaken the dollar. Contrary to these expectations, the currency strengthened as investors largely dismissed these geopolitical shocks.

Positive employment data has also contributed to the dollar’s gains, casting doubt on the extent of future interest rate reductions by the Fed. This unexpected rally highlights the challenges Wall Street analysts face in forecasting market trends during the Trump administration.

“The landscape is constantly shifting,” remarked Tom Nakamura, head of fixed income and currencies at AGF Investments. “No matter our predictions for the year, it’s tough to stick with them for long.”

Since the pandemic, the US economy has repeatedly defied predictions of recession, with Trump’s trade disputes and military threats adding further uncertainty. These developments have periodically sparked concerns about the dollar’s global dominance and the attractiveness of US Treasury securities, especially during episodes like the market turmoil following new tariffs in April.

After a significant decline in early 2025, the dollar stabilized in the latter half of the year as Trump eased some tariffs and economic growth persisted.

“Markets are realizing that many of these disruptions are temporary,” said Chris Gunster, head of fixed income at Fidelis Capital Partners. “Compared to last year’s volatility, the dollar is likely to remain steadier.”

Looking Ahead: Market Expectations and Key Events

Many financial experts still anticipate a gradual weakening of the dollar as the Federal Reserve continues to lower rates. In January, bearish bets against the dollar surged by approximately $21 billion, marking the largest monthly increase since March 2020.

This heavy short positioning set the stage for a rebound when economic data alleviated concerns about a sharp labor market slowdown. As Treasury yields climbed, the dollar followed suit, posting gains over several consecutive days.

Insights from Bloomberg Intelligence

“Cyclical and carry factors are likely to dominate currency markets in 2026, but structural issues such as de-dollarization remain relevant,” noted Audrey Childe-Freeman and Stephen Chiu, strategists at Bloomberg Intelligence.

The upcoming release of the December jobs report and a possible Supreme Court decision on Trump’s global tariffs will provide further tests for the dollar’s trajectory.

Citigroup analysts, led by Daniel Tobon, are among the few who see room for further dollar appreciation this year, citing ongoing economic strength. In a recent note, they suggested that strong job growth could fuel additional gains.

“Geopolitical factors matter,” said Neil Sutherland, portfolio manager at Schroder Investment Management. “But ultimately, growth, inflation, and earnings will drive the market—and for now, those fundamentals remain supportive.”

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