Dollar Slipped Slightly Overnight But in Position for Likely Weekly Gain – Currency Thoughts
Dollar Slipped Slightly Overnight But in Position for Likely Weekly Gain
January 16, 2026
Like clockwork as documented in an earlier post, the dollar has opened another calendar year on an uphill trajectory and as in the first full week of January is poised for a second weekly advance in a row. Compared to 2025 closing levels, the dollar has strengthened 1.1% against the euro and Swiss franc and 0.9% versus the Japanese yen.
Yesterday’s rebound in U.S. equities was followed by mixed movements in Asia this Friday and marginal declines so far in key euro area stock exchanges. Share prices closed up 1.9% in Taiwan but 0.3% lower in China, Hong Kong and Japan. A 0.4% drop in the Paris CAC leads the losses in Euroland. In pre-open U.S. action, the Russell 2000 and Nasdaq futures extended Thursday’s gains, while the SPX and DJIA marked time.
The 10-year U.S. Treasury yield is also steady as is its British counterpart, but ten-year German, French, Italian and Spanish sovereign debt yields each ticked a basis point higher. The Japanese JGB yield closed three basis points higher and a dozen basis points above its end-2025 level.
A 1.3% setback in the price of silver has outflanked 0.3% declines in gold and Bitcoin. The price of oil climbed 1.2% in contrast, as President Trump continues to promote fossil fuel production to the exclusion of alternative energy sources.
Today’s data release calendar has been lighter than is typical for a Friday, and there have been no central bank interest rate announcements of note.
As in France and Spain earlier this week, final estimates of German and Italian consumer price inflation for last month were left unrevised from their preliminary measurements. German consumer prices held steady month-on-month and posted the lowest year-on-year increase (1.8%) since 1.6% in September 2024. In October and November of 2022, German inflation had peaked at 8.8%, and the average CPI increase in 2023 of 5.9% continued to be well above the European Central Bank target of 2.0%. In 2024, average German consumer price inflation had slowed to 2.2%, and that was also last year mean pace. Core inflation that excludes food and energy in Euroland’s largest member fell to a 54-month low of 2.4% last month but still averaged 2.8% for 2025 as a whole. Also within the core inflation category, service sector price inflation remained stuck at a problematic 3.5% both in December and for the year of 2025 as a whole. The next ECB interest rate cut is not expected before late summer and possibly beyond the end of this year.
Italian consumer prices in December rose 0.2% on month. In year-on-year terms after November’s 13-month low of 1.1%, Italian CPI inflation, which crested in October 2022 at 11.8%, edged up to 1.2% last month. Core inflation of 1.7% matched November’s reading and tied for the lowest pace since February 2022.
Treasury-compiled U.S. capital flows with the rest of the world for November reported yesterday late afternoon revealed large net inflows that month exceeding $200 billion, and the net inflow involving long-term capital in January-November was almost 45% greater than in the first eleven months of 2024. Considering that 2025 turned out to be a year of dollar depreciation, the rising tide of incoming capital illustrates the risks of assuming automatic causation between capital movements and the dollar. In a system of floating exchange rates, equilibrium in exchange rates, interest rates and capital flows are determined simultaneously by market forces.
Food price inflation in New Zealand slowed to an 8-month low of 4.0% in December from 4.4% in November and a recent high of 5.0% in July and August. New Zealand’s manufacturing purchasing managers index in December jumped to a multi-year high of 56.1 in December from 51.4 in November, a 2025 low of 47.4 and 41.1 in mid-2024.
Malaysian real GDP last quarter was 5.7% above the level in the final quarter of 2024. That was the fastest growth in six quarters and also above the average calendar year growth rates of 4.9% in 2025 and 5.1% in 2024.
Just in: U.S. industrial production grew 0.4% in December compared to the prior month. The was more than twice expectations and equal to November’s four-month high. In the fourth quarter, production rose 0.2% on month and 2.2% on year. In the five minutes following the opening bell of stock market trading, the SPX, Nasdaq and Russell 2000 advanced by 0.3%, 0.5% and 0.9% but the DOW barely moved. The dollar similarly has hardly changed against the euro or yen since the early part of this report was written.
Copyright 2025, Larry Greenberg. All rights reserved.
Tags: German and Italian CPI, New Zealand PMI and food prices, U.S. Treasury TIC capital flows
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