The U.S. dollar experienced a slight decline for the second consecutive day against most major currencies on Tuesday, as tensions from the U.S. military operation in Venezuela eased and risk appetite returned following a strong rally in global stocks, supported by Federal Reserve officials’ comments leaning toward a cautious approach to monetary tightening.
Currency movements remained within narrow ranges. The euro edged up slightly to $1.1729, while the British pound gained 0.1% to $1.3552. The dollar gave up some of its gains against the Japanese yen, settling near 156.37 yen. Analysts at ING noted that the initial surge toward the dollar as a safe haven following the military action lasted only a few hours, as market concerns quickly subsided once the event was absorbed.
Although the detention of Venezuelan President Nicolás Maduro over the weekend created significant political noise, its impact on financial assets was limited and short lived, particularly as global stocks reached new highs, prompting capital flows away from the dollar and restoring balance to the currency market.
The U.S. Dollar Index fell to 98.25 points, extending losses after four consecutive days of gains a move traders described as profit taking following a short lived rally. Meanwhile, currencies tied to global markets, notably the Australian and New Zealand dollars, were the biggest beneficiaries of the improved risk appetite. The Australian dollar rose to its highest level in over a year at $0.6739, while the New Zealand dollar gained 0.13% to $0.5797.
Weak U.S. economic data added pressure on the dollar, with the December manufacturing report showing a sharper than expected contraction, reaching a 14 month low. Comments from Minneapolis Fed President Neel Kashkari also reinforced growing expectations that the Fed may adopt a more cautious tone in the near term, particularly after he warned of a potential rise in unemployment.
Interest rate futures still indicate roughly an 80% probability of the Fed holding rates steady at its January meeting, reflecting market conviction that the tightening cycle has entered a temporary pause. In Asia, the dollar dipped slightly against the offshore Chinese yuan to 6.983, while the only exception was the Swiss franc, against which the dollar rose modestly by 0.08% to 0.7922.
Despite the dollar’s strong start to 2026, Bank of America Global Research notes that the current strength does not fully reflect the broader picture. The price movement was supported by a temporary surge in U.S. markets but did not negate the existing technical framework. Technically, the dollar began the year on a downward trajectory against most G10 currencies, except for the New Zealand dollar and yen, with clear signals of continued weakness against the Australian dollar.
U.S. equities did not match global market performance in the early days of the year. Capital flowed to external markets at a higher pace, while U.S. exchanges lagged among G10 markets in relative performance. Options flows at the end of 2025 revealed a clear positioning favoring bets on a weaker dollar against major currencies.
Overall, Bank of America maintains a negative outlook on the dollar, based on technical indicators and options market positioning, which suggest that downside pressure remains the most prominent factor driving currency movements, despite recent gains.
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