Honestly, if you're looking for a simple "yes" or "no" about the greenback right now, you’re going to be disappointed. The markets are messy. It’s mid-January 2026, and while most big-bank analysts spent all of last year predicting a total dollar collapse, the DXY (that’s the US Dollar Index) just pulled a fast one on everyone.
It’s up. Sorta.
After falling nearly 10% in 2025—which was its worst performance in about eight years—the dollar started this year with a surprising little rally. We’re sitting right around the 99 to 100 level on the index. But here’s the kicker: nobody can agree if this is a genuine comeback or just a "dead cat bounce" before things get ugly again.
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Is the US dollar going up or down right now?
To understand where we’re at, you have to look at the tug-of-war happening between the Federal Reserve and everyone else.
The Fed just cut rates by 25 basis points in December, bringing the range to 3.5%–3.75%. Usually, when interest rates go down, the currency follows. Lower rates mean lower returns for investors holding dollars, so they move their cash elsewhere. But the US is weirdly resilient. Even with these cuts, our rates are still higher than what you’ll find in Europe or Japan.
The "Two Halves" Theory
A lot of the smart money—think Morgan Stanley and Goldman Sachs—is betting on a year of two distinct phases.
- The First Half (Now through June): Expect things to be choppy. There’s a lot of talk about a "soft patch" in the economy. The Fed might cut rates again in March or June to keep the job market from falling apart. If that happens, experts like David Adams at Morgan Stanley think the DXY could slip down to 94.00.
- The Second Half: This is where it gets interesting. There’s a massive government stimulus bill (people are calling it the "One Big Beautiful Bill") that's expected to kick in later this year. Combined with the massive $3 trillion AI investment boom, the US might just outgrow the rest of the world again, pushing the dollar back up toward 100 by December.
Why the dollar won't just "die"
You've probably heard the "de-dollarization" rumors. People love talking about the dollar losing its crown. But look at the actual data from this month. In the first two weeks of January 2026, the dollar actually strengthened. Why? Because when the world gets nervous—whether it’s political drama in France or new tensions in the Middle East—investors run back to the US Treasury.
It’s the ultimate safe haven.
Also, we’ve got "Freedom Trade" flows. Recent interventions in places like Venezuela and threats toward Iran have actually spiked demand for dollars. It’s a bit cynical, but geopolitical chaos almost always helps the greenback.
The AI Wildcard and the Labor Gap
There’s a weird thing happening in the job market that most people aren't paying attention to. The unemployment rate for college grads aged 20–24 has spiked to 8.5%. That’s a 70% increase from a few years ago.
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Jan Hatzius over at Goldman Sachs thinks this might be because of AI.
Companies are getting so efficient with "automated intelligence" that they aren't hiring entry-level white-collar workers like they used to. If this trend continues, the Fed will have to keep slashing rates to save the middle class, which would be a massive "down" signal for the dollar.
On the flip side, if the US stays the global leader in AI tech, all that foreign capital will keep flowing into Silicon Valley, keeping the currency propped up. It’s a bizarre paradox: AI might hurt the domestic job market but help the global value of the currency.
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What to watch for in the coming weeks
If you’re trying to time a currency exchange or just want to know if your next vacation is going to be expensive, keep your eyes on these specific triggers:
- The New Fed Chair: Jerome Powell’s term is up in May 2026. Whoever replaces him will basically hold the steering wheel for the global economy. A "dovish" pick (someone who likes low rates) will send the dollar down. A "hawkish" pick will send it up.
- The 97.70 Support Level: Technically speaking, if the DXY falls below 97.70, the "bull run" is officially over, and we’re headed for the mid-90s.
- Tariff Talk: There’s a proposal for a 10% "Liberation Day" tariff on all imports. If that actually passes, inflation will spike, the Fed will have to raise rates again, and the dollar will likely go through the roof.
Actionable Insights:
If you are holding a lot of USD, the current "mini-rally" in January is a decent window to diversify if you believe the mid-year slump forecasts. However, for most people, the dollar remains the "least bad" option in a world where Europe is stagnating and the Yen is still struggling with political risk. Don't bet against the greenback for the long haul—it's got a habit of proving the skeptics wrong just when they think it's finished.
Focus your attention on the February Non-Farm Payroll (NFP) report. That will be the first real signal of whether the Fed needs to get aggressive with more cuts or if they can afford to sit on their hands and let the dollar stay strong.