January 15, ATFX Analysis: The Federal Reserve's first Beige Book of 2026 has been released, presenting a neutral to optimistic tone. The Beige Book mentioned that among the 12 Federal Reserve Districts, eight reported slight or modest growth in economic activity, three reported little or no change, and one reported a slight decline. The previous Beige Book, released in late November 2025, stated that economic activity had changed little since the prior report, with two districts experiencing modest declines and one reporting modest growth.
Comparing the contents of the two reports, it is evident that from late November 2025 to early this month, the U.S. macroeconomy showed clear signs of recovery. The fact that eight out of twelve districts achieved growth itself signifies that the U.S. economy is recovering from the shadow of the government shutdown in October-November. Following economic recovery, the urgency for the Federal Reserve to cut interest rates diminishes, which is logically bearish for the U.S. Dollar Index.
Regarding the labor market, the Beige Book noted that employment was largely unchanged, with eight of the twelve districts reporting no change in hiring. In the current labor market context, no change is considered good news. According to U.S. Non-Farm Payrolls data, non-farm payrolls increased by 50,000 in December, lower than the previous figure of 56,000 and also below the average level of 100,000 seen before May 2025.
Former President Trump's aggressive immigration policies and the displacement of basic jobs by the proliferation of artificial intelligence are the fundamental reasons for the sharp decline in the U.S. labor market after May 2025. Until the effects of these two factors completely dissipate, the U.S. job market outlook remains challenging. However, maintaining a state of "largely unchanged" for a period is welcome news for an already difficult situation.
On the inflation front, businesses expect the pace of price increases to slow, but prices will remain elevated. Inflation data is a key factor constraining the Federal Reserve's ability to cut interest rates. If rate cuts are too aggressive, commodity prices could rise rapidly, potentially causing U.S. price indices to spiral out of control again. Historically, the probability of U.S. inflation continuing to decline is much higher than the probability of it rising persistently. For instance, the U.S. core CPI annual rate held steady at 2.6% in both November and December 2025, whereas before September, the inflation rate was able to stay above 3%.
On the day the Beige Book was released, the U.S. Dollar Index closed with a bearish candlestick, with its high and low prices relatively close to those of the previous four candlesticks. From a technical perspective, the Dollar Index is in a state of short-term sideways consolidation. A report of this importance, which is less impactful than Non-Farm Payrolls or CPI data, is unlikely to trigger a breakthrough move in the Dollar Index. However, the neutral optimism conveyed in the Beige Book suggests that the U.S. economy may not be as pessimistic as some external forecasts, indicating a possibility for the Dollar Index to extend its near-term upward trend.
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