Starting in 2026, the US dollar trading scene has seen a turning point. In Friday's market, the US Dollar Index rose 0.2% to 98.44. This seemingly ordinary start hints that last year's downward trend may have come to an end.

Looking back at 2025, the dollar certainly had a tough year. It declined by 9.4% — the largest annual drop in eight years. What exactly happened? Ultimately, it was due to narrowing interest rate differentials. The gap between Federal Reserve rates and those of other major economies shrank, prompting investors to seek higher-yielding assets. The Japanese yen rebounded slightly, but major currencies like the euro and British pound appreciated significantly against the dollar.

Pressure also came from multiple directions. The US fiscal deficit continued to widen, global trade tensions increased, and concerns about the Federal Reserve's policy independence grew, all challenging the dollar's safe-haven status.

Entering 2026, traders are focusing on US economic data. Next week, liquidity will improve, and more comprehensive economic indicators will be released. Jens Nevig Petersen, a foreign exchange strategist at Danske Bank, said that during this period, the market will receive clearer signals to judge the Fed's interest rate trajectory for the year. The yen recently hit a ten-month low, and hedge fund rebalancing may continue.

In short, whether the dollar can truly stabilize depends on whether US economic data can convince the market.