The dollar recovers its pulse

The US dollar rebounded in early 2026, driven by three key factors: shifting expectations about the Federal Reserve's future actions, geopolitical tensions in the Middle East, and increased investment in U.S. sectors related to artificial intelligence development. Initially, trade tariffs under the Trump administration were seen negatively, adding uncertainty to trade, inflation, and growth prospects.

This led to a weaker dollar compared to the euro, which was trading above 1.20 dollars, and a five-year high against the U.S. currency. However, as the year progressed, the dollar regained ground due to reassessments of inflation pressures and the resilience of the U.S. economy. Investors began to anticipate a more restrictive Fed policy for an extended period, possibly including rate hikes later in the year.

The dollar became more attractive as a safe-haven asset amid global uncertainty, and U.S. markets' ability to draw in international capital also bolstered its appeal. Among developed currencies, the euro's sensitivity to energy shocks diminished its growth, while the British pound held stronger, supported by the Bank of England's cautious stance towards high inflation.

The Japanese yen faced pressure from a wide interest rate differential with the U.S., Japan's expansionist fiscal policies, and Japan's high energy dependence. The U.S. dollar even reached levels not seen in nearly four decades, surpassing 163 yen, prompting coordinated efforts by Japan and the U.S. to curb the yen's depreciation.

Emerging currencies exhibited varied performance, with the Turkish lira and Indian rupee continuing their decline, while some Latin American currencies gained support from higher interest rates and favorable economic outlooks. Colombia exemplified this trend, benefiting from a more favorable election outcome and rising oil prices.

However, the dollar's strength is not guaranteed, as a less restrictive Fed, reduced Middle East tensions, or a slowdown in AI-related investment flows could weaken its position. Additionally, debates about reducing global exposure to U.S. assets due to trade uncertainty, fiscal deterioration, and institutional doubts could also impact the dollar's trajectory.