WASHINGTON, January 7, 2026 — The U.S. dollar is flexing its muscle, driven by anticipation of robust labor market data and geopolitical anxieties, while the euro stumbles amid a resurfacing political crisis in France.
Dollar Gains as Global Risks Mount
Table of Contents
The greenback is benefiting from its safe-haven status as investors brace for potential economic headwinds and escalating international tensions.
- The U.S. dollar is strengthening on expectations of positive labor market statistics.
- Political instability in France is weighing heavily on the euro.
- Geopolitical risks, including potential shifts in global power dynamics, are boosting demand for safe-haven assets.
- Concerns about the future of NATO and potential U.S. control of oil reserves are adding to market uncertainty.
The dollar’s ascent is fueled by expectations of strong labor market statistics, reducing the likelihood of further easing from the Federal Reserve in March to 45%. This, coupled with a growing appetite for safe-haven assets in an increasingly volatile world, is bolstering the greenback’s position. The situation is further complicated by geopolitical factors, including Donald Trump’s statements regarding the potential seizure of Greenland and discussions about the potential collapse of NATO.
Adding to the complexity, the U.S. could potentially gain control of approximately 30% of the world’s oil reserves, granting it significant leverage over global markets. This possibility allows the U.S. to dictate terms, influencing market dynamics and further supporting the dollar’s strength.
Trump’s Economic Vision and the Fed
Donald Trump has expressed a desire to lower interest rates to 1%, a move that contradicts conventional economic theory given the current rate of GDP growth. However, a shift in the composition of the Federal Open Market Committee (FOMC) could alter this trajectory. The upcoming court verdict in the Lisa Cook case is therefore crucial, as it could establish a precedent allowing the president to dismiss members of the Federal Reserve.
The former president also aims to further curb inflation, even suggesting drastic measures like capturing the president of Venezuela. Currently, Washington is demanding that Caracas sell 50 million barrels of oil and sever ties with Beijing, Moscow, Tehran, and Havana. This reflects a broader trend of deglobalization and a move towards a more bipolar world order, which, in the short term, benefits the U.S. dollar.
Eurozone Vulnerabilities
The euro’s decline is also linked to the fragility of the European economy. Following inflationary pressures in Italy and France, consumer prices in Germany slowed in December, falling from 2.6% to 2%. If this disinflationary trend continues, the European Central Bank (ECB) may consider resuming its easing cycle, a bearish signal for the euro.
According to Chancellor Friedrich Merz, certain sectors of the German economy are in a precarious state, and the government has not adequately addressed these challenges in the eight months since taking office. Meanwhile, the French Ministry of Finance has warned that the budget deficit could reach 5.4% if parliament fails to reach a compromise, increasing the risk of a credit rating downgrade and further pressuring the EUR/USD exchange rate.
Despite the dollar’s strength, gold has managed to hold its ground, partially due to anticipated increased activity in the bullion market by central banks in a world increasingly divided into opposing blocs.
