USD Slides on Mixed Data, Fed Independence Fears!!

Introduction

The U.S. dollar moved sideways to softer last week as a sequence of concrete events — not vague sentiment swings — shaped trading: mixed domestic economic data, investor unease about Federal Reserve governance, and targeted foreign-exchange developments in Asia. These factors combined to keep the Dollar Index (DXY) rangebound and to intensify medium-term bearish views on the currency.

Domestic Drivers: Mixed Data and Fed Uncertainty

Two pieces of U.S. data anchored market attention. On one hand, reports showed a notable softening in job openings in November; on the other, services-sector activity surprised to the upside in December. That combination left traders uncertain about the strength of the labor market and the trajectory of inflation — and therefore the Fed’s path.

Why the Fed factor matters

Markets have been pricing in a higher probability of policy easing than many economists expected. Questions about Fed independence and leadership choices amplified that sentiment: if monetary policy is perceived as subject to political pressure, traders assign a greater chance of earlier or larger rate cuts. The dollar, which benefited for years from higher U.S. yields, suffers when those yield expectations fall.

Short-term datapoints to watch

Investors were particularly focused on the upcoming nonfarm payrolls release as the next clear signal. In the days before that report, the DXY traded with limited conviction — up marginally at times but unable to sustain rallies — reflecting the market’s wait-and-see stance.

External Pressures: FX Moves in Asia

Outside the U.S., central banks and currency policy added tangible pressure on the dollar. Two developments stood out:

Renminbi valuation debate

Economists and international institutions have increasingly urged Chinese authorities to allow the renminbi (RMB) to appreciate, arguing the currency remains substantially undervalued relative to historical norms. Estimates cited during the week ranged from roughly 15% to as high as 25% undervaluation versus real equilibrium levels. The RMB itself rose about 4.4% versus the dollar across 2025, but those calling for further adjustment argue a stronger RMB would exert structural downward pressure on the U.S. dollar through trade and positioning flows.

Rupee volatility and RBI intervention

In India, the rupee briefly strengthened past the symbolic 90-per-USD mark — trading near 89.88 — after Reserve Bank of India dollar sales aimed at smoothing moves. That intervention highlights a pattern seen across several emerging markets: authorities use reserves to blunt sharp USD appreciation. While intervention can limit short-term dollar strength, it also underscored how dollar dynamics transmit globally and how local policy responses can shift cross-currency relationships.

Geopolitics and Short-lived Safe-Haven Flows

Recent geopolitical headlines prompted temporary safe-haven bids for the dollar in some sessions, but those flows faded quickly as risk sentiment normalized. The pattern — brief spikes in dollar demand followed by reversals — suggests traders are distinguishing between transitory shocks and sustained drivers of USD valuation.

What the Data and Events Imply for Traders and Businesses

For currency traders, the environment favors nimble, data-driven positioning: strong U.S. releases could spark short-term dollar strength, but structural headwinds (Fed uncertainty, global FX adjustments) point to continued downside risk at longer horizons. For corporate treasuries and importers/exporters, hedging horizons and triggers should reflect this two-speed reality: protect against near-term volatility while considering the potential for gradual USD weakness over several quarters.

Conclusion

Tangible, recent developments — mixed U.S. labor data and services readings, concerns about Fed independence and policy tilt, explicit calls for RMB appreciation, and active RBI intervention — combined to keep the dollar on the defensive last week. Short-lived safe-haven spikes punctuated trading, but absent a clear shift in rate expectations or geopolitical escalation, the balance of evidence points toward continued dollar vulnerability even if intermittent rallies occur on strong U.S. prints.