The US Dollar (USD) saw a rebound at the start of the week, supported by President Trump’s nomination of Kevin Warsh as Fed Chair. This boost in the USD also follows stronger-than-expected ISM manufacturing data.
Market participants have scaled back expectations for more Fed rate cuts this year due to stronger growth. There remains an assumption that further Fed rate cuts could contribute to USD weakness in 2026.
Gold And Hyperliquid Gains
Gold recovered from a low since January 6, trading above $4,900, with a daily rise of about 6%. Meanwhile, Hyperliquid’s sector extended gains by 8% due to a new proposal impacting prediction markets.
Japan is preparing for snap elections on 8 February 2026, diverging from the regular electoral calendar. This holds the potential for a political mandate reset under increased fiscal scrutiny.
Zilliqa (ZIL) rallied over 20% to $0.006, building on a prior 34% surge ahead of the Cancun EVM upgrade. The upgrade is boosting ZIL’s market sentiment despite a generally weak cryptocurrency market.
The US dollar has started the week with strong upward momentum, supported by the nomination of Kevin Warsh as the next Fed Chair. This development reduces policy uncertainty and points towards a more hawkish central bank. Combined with positive economic data, the case for a stronger dollar is building.
We have seen markets quickly scale back expectations for Federal Reserve rate cuts this year. The latest ISM Manufacturing PMI data from January, which came in stronger than expected at 51.2, confirms an expanding manufacturing sector. This robust growth makes it harder for the Fed to justify lowering interest rates in the near term.
Changing Dollar Outlook
Our previous forecasts for dollar weakness in 2026 were heavily dependent on the assumption of multiple Fed rate cuts. This new information suggests those assumptions may no longer hold. Derivative positions that profit from a falling dollar, such as short USD futures or long EUR/USD call options, are now facing significant headwinds.
Looking back at 2025, the market narrative shifted from the Fed holding rates steady above 5% to pricing in significant easing for early 2026. That consensus view, which drove much of the trading activity late last year, is now being directly challenged. The market is now repricing this entire outlook.
In the coming weeks, traders should consider positioning for continued dollar strength, especially against currencies whose central banks are expected to remain dovish. This could involve strategies like buying call options on the dollar index (DXY) or selling futures contracts on the euro. The current environment favors strategies that benefit from a rising US dollar.
We should also prepare for an increase in currency volatility as the market digests this fundamental shift. The repricing of rate expectations will likely lead to wider trading ranges in major pairs. This environment could be favorable for derivative strategies that profit from price swings, such as long straddles, particularly around upcoming economic data releases.
