The US dollar recorded some volatility on Tuesday as investors weighed lingering geopolitical tensions alongside a fresh round of disappointing US economic data.
Markets could remain cautious regarding any potential geopolitical developments, which could eventually fuel more volatility for the dollar.
On the macro front, US data reinforced concerns about slowing economic momentum. The ISM Manufacturing PMI fell to 47.9 in December, marking a third consecutive month of deterioration and its lowest level since October 2024. The reading came in below expectations for a modest improvement and highlighted a faster pace of contraction in manufacturing activity, driven mainly by declines in production and inventories. While the employment component improved, it continued to signal a cooling labour market.
Upcoming US data releases this week could remain in focus, including the JOLTS job openings report, the ISM Services PMI, and Friday’s nonfarm payrolls. A continuation of soft data would likely reinforce expectations of a more dovish Federal Reserve stance in 2026, with markets currently pricing in two rate cuts by the end of the year. With both geopolitical uncertainty and domestic growth concerns in play, the markets could experience heightened volatility into the coming sessions as incoming data could further shape the policy outlook.
