Against the backdrop of resilient U.S. economic performance and recent sticky inflation, the U.S. dollar attempted a rebound on Monday, yet this does not signify a strengthening of its safe-haven asset attributes this year. The Bloomberg Dollar Spot Index just recorded its largest two-day gain since April, partly driven by unexpectedly strong U.S. factory data. This data spurred a dollar recovery from the near four-year low hit last month, with the dollar index having fallen approximately 1.3% in the previous month. Jayati Bharadwaj, a FX strategist at TD Securities, stated that this month typically represents a window for robust U.S. economic data, making it highly probable for the dollar to extend its recent rebound. Bharadwaj forecasts a 2% rise for the dollar in February, a move that would diverge from the bearish sentiment that has suppressed the dollar over the past month or so. She said, "If the previous trend continues, and U.S. economic data starts surprising to the upside, then the dollar will experience a degree of rebound." The dollar began the year on a weak note, extending last year's decline of roughly 8%. Multiple policies from the Trump administration have triggered market volatility, including threats of new tariffs on European allies in a bid to take over Greenland, and pressure on the Federal Reserve to cut interest rates; he has also expressed approval for a weaker dollar, a statement that impacted markets despite subsequent efforts by Treasury Secretary Scott Bessent to downplay it. However, Bharadwaj argues that all factors negative for the dollar will ultimately materialize gradually, hence she advises clients to use any dollar rebounds to establish short positions, while turning long on the euro, Australian dollar, British pound, and Swedish krona. She predicts the euro will rise to 1.22 against the dollar in the third quarter, reaching its highest level since 2021; the current exchange rate is approximately 1.18. She stated, "This is an easy trade to execute because our reasons for being bearish on the dollar far outweigh the reasons supporting a sustained dollar rebound. Any upward correction or position unwinding in the dollar presents a good opportunity to re-establish significant short dollar positions." Barclays also believes the weakness reflected in the dollar's January decline is likely to persist, as investor confidence in this global reserve currency has shown some degree of erosion. Analysts at Barclays wrote in a report this week that this current dollar weakness differs from the significant sell-off between April and June of last year: back then, Trump's "Liberation Day" tariffs upended global trade秩序, and markets perceived these tariffs as "dealing a significant blow to the U.S. economy," potentially triggering monetary policy easing, which led to the dollar's sharp decline. The analysts wrote, "This time, however, the dollar's weakness is occurring against a backdrop of notable U.S. economic resilience, more purely reflecting an increased risk premium being priced into the dollar, built upon a foundation of waning market confidence." This phenomenon might be a concerning signal, suggesting that even as the U.S. negotiates new trade deals, the market is questioning its reliability as a trade partner. In a social media post around midday Monday, Trump announced that the U.S. had reached a new trade deal with India, which would lower tariffs on Indian imports. However, concerns about potentially disruptive shifts in U.S. trade policy have not dissipated. Nicholas Colas, co-founder of DataTrek Research, stated in an email report on Monday, "The average decline in the dollar last month exceeded the monthly average for 2025. The dollar weakened against almost all major currencies last year, and this trend has continued into early 2026."
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