USD pulls back after testing highest level since December – BBH

US Dollar (USD) retreated slightly after probing yesterday its highest level since December 2, BBH FX analysts report.

Dollar faces pressure despite goldilocks US data

"The run of goldilocks-type US economic data – neither too hot nor too cold - continues to underpin USD, and US stocks. Still, we doubt the dollar index (DXY) will sustain a break above 100.00 because easing US inflation pressures and weak labor demand leave plenty of room for the Fed to deliver additional rate cuts."

"Initial jobless claims for the week ending January 10 unexpectedly dropped under 200k to the lowest level since November, confirming there’s no layoff spiral underway. Claims have only fallen below 200k a few times in recent years. Nevertheless, downside risks to employment continue to rise because the vast majority of job gains in 2025 have been concentrated in a single sector - education and health services."

"The US Treasury International Capital (TIC) data showed that in the twelve months to November, foreign investors accumulated a record $1569bn of long-term US securities (treasury bonds & notes, corporate bonds, equities, gov’t agency bonds). This dwarfs the -$960bn US trade deficit accumulated over the year to October. The Trump administration’s effort to narrow the US trade deficit means fewer dollars will flow overseas, reducing the need for those funds to be recycled back into US securities. That is a structural drag on USD."