The dollar index steadied around 98.4 on Tuesday following a volatile previous session marked by geopolitical jitters and heightened uncertainty over the Federal Reserve’s policy path. On Monday, the index climbed as much as 0.4% before ending about 0.1% lower, as investors weighed the implications of the US attack on Venezuela. Concerns about a broader geopolitical escalation appeared to ease as the session progressed. Investors also assessed ISM data showing the sharpest contraction in US factory activity since 2024 in December. Adding to the dovish tone, Minneapolis Fed President Neel Kashkari said there is a risk the unemployment rate could rise further, reinforcing expectations for additional Fed rate cuts this year. Still, markets are pricing in an over 80% probability that the central bank will hold rates later this month. Attention now turns to a slate of labor market data for further clarity, culminating in the December jobs report on Friday.
