The dollar rebounds but cannot hide its weakness. What bets are the market placing on the eve of non-farm payrolls?

The US Dollar Index rose slightly by 0.11% on January 8th, closing at 98.683. Behind this seemingly calm figure, there are profound market divergences: on one side, geopolitical risks are boosting safe-haven demand; on the other, soft US economic data are dampening the dollar outlook. The outcome of this tug-of-war will directly influence the direction of risk assets such as gold and cryptocurrencies.

The Delicate Situation of the Dollar: Rebound or Stagnation

After falling from a recent high of 98.86 to 98.25, the dollar index recovered some ground today to 98.683. This rebound appears strong, but when compared to the performance of six major currencies, the true predicament of the dollar becomes evident.

Key observation: The depreciation of the euro and pound indicates that the dollar is supported among developed economies; however, it underperforms against emerging market currencies like the Swedish krona, reflecting market concerns about the global economic outlook.

The Battle of Three Forces

Geopolitical Safe-Haven Flows Boost the Dollar

According to the latest news, escalating tensions in Venezuela, ongoing Middle East conflicts, and the prolonged Russia-Ukraine war have increased risk premiums, prompting investors to hold dollars as a safe haven. This explains why the dollar can rebound amid economic weakness.

Weak Economic Data Suppresses the Dollar

But the pressure is equally strong. The US December ISM manufacturing report fell short of expectations, and markets widely anticipate weak December non-farm payroll data. Reports suggest that traders are even betting on the Federal Reserve cutting interest rates twice this year. Weak economic data will reduce the attractiveness of dollar assets, as lower interest rates diminish yields in USD-denominated investments.

Concerns Over Federal Reserve Independence

Under Trump’s administration, concerns about the Fed’s independence have also weighed on the dollar. Political uncertainties have caused investors to doubt the dollar’s long-term prospects.

Gold and Crypto Assets as Winners

This predicament of the dollar directly benefits other assets. According to reports, gold once reached a weekly high of $4,474 per ounce, currently trading around $4,455. Bitcoin, supported by geopolitical risks and rate cut expectations, has hit new highs above $92,000.

This is not an emotional rally but a re-pricing of assets. Large institutional investors, while US stocks have not fully recovered, have already seen significant net inflows into Bitcoin ETFs, indicating early asset allocation adjustments. Whale activity has also reversed, starting to buy back at key support levels, confirming an upward trend.

The Critical Turning Point Is Near

The non-farm payroll report on Friday (January 10th) will be a key indicator. If the data remains weak, expectations for rate cuts by the Fed will intensify, and the dollar index could continue to decline, providing stronger support for gold and cryptocurrencies. Conversely, the opposite could happen.

The market is already betting ahead. Reports suggest investors are pricing in weaker-than-expected non-farm data to accelerate the Fed’s easing policies, which explains why gold is moving independently even as US stocks rise.

Summary

The 0.11% increase in the dollar index appears to be a rebound on the surface, but in reality, it reflects a tug-of-war between geopolitical safe-haven demand and recession fears. The dollar is supported by risk premiums but also suppressed by rate cut expectations, placing it in a highly unstable equilibrium. Before the non-farm data release, this uncertainty will continue to boost the appeal of gold and cryptocurrencies, as expectations of accelerated easing by the Fed highlight the value of non-yielding and fixed-supply assets. This is not just a dollar dilemma but a signal of global liquidity pattern adjustments.