The dollar extended losses across major currency pairs in early January trading as weaker-than-anticipated US employment figures triggered a broad reassessment of Federal Reserve policy expectations. Nonfarm payrolls for December showed hiring decelerated sharply, with the headline figure falling well below economist forecasts and the unemployment rate ticking higher, according to data released Friday. The disappointing print has amplified recession concerns among market participants, with traders now pricing in a more dovish Fed trajectory for the first half of 2026.
The euro capitalized on dollar weakness, climbing toward technical resistance zones that have capped gains since late November. Market analysts note that the common currency is drawing support from both relative growth dynamics and mounting speculation that the European Central Bank may pause its easing cycle later this month. "The transatlantic growth divergence is becoming more pronounced," said a senior G10 currency strategist at a major European bank. "Soft US data is shifting the narrative, and the ECB has less room to ease if inflation remains sticky in the core economies." The pound also advanced modestly, though gains were tempered by lingering uncertainty over UK fiscal policy and its impact on growth.
Japan's yen emerged as the session's standout performer, strengthening across the board as traders increased bets on additional Bank of Japan rate hikes in coming quarters. Comments from BOJ officials suggesting confidence in the wage-inflation cycle have reinforced expectations for policy normalization, with markets positioning for potential action at the January meeting. Meanwhile, commodity-linked currencies including the Australian and Canadian dollars rallied on improved risk sentiment and firmer energy prices. West Texas Intermediate crude has stabilized above recent lows amid signs of resilient Chinese demand and ongoing supply management from major producers.
Precious metals advanced as portfolio managers increased allocation to non-yielding assets amid the shifting rate outlook. Gold has broken above its 50-day moving average, a technical development that strategists say could attract momentum-driven inflows. In digital asset markets, Bitcoin resumed its uptrend as institutional participation through regulated vehicles continued to expand. Geopolitical tensions remain a persistent undercurrent, with traders monitoring developments in the Middle East and US-China trade discussions scheduled for later this month.
Looking ahead, market focus turns to this week's US inflation data and Fed speaker commentary for further clarity on policy direction. The ECB's January meeting looms as a critical event risk for euro positioning, while the BOJ's decision will test yen bulls' conviction. Technical analysts are watching whether the euro can sustain a breakout above its multi-week range, which could signal additional upside toward year-to-date highs. For now, the path of least resistance appears to be dollar weakness as growth concerns mount.
Disclaimer: This analysis is AI-generated for educational purposes. Traders should verify all information and conduct their own research before making trading decisions.