USD strengthened rapidly ahead of the release of FOMC meeting minutes and Nonfarm Payroll data this week.

The US dollar index (DXY) rocketed more than 1 percent to a record daily high of 104.85 in European trading Tuesday (3/January) before finally slumping to 104.45 as we entered the New York session. The greenback is seeking to break the bearish pressure that has been weighing on it over the past year-end, ahead of this week's release of FOMC meeting minutes and Nonfarm Payroll data.

dxy dailyDXY Daily chart via TradingView

The US dollar strengthened rapidly in the first European trading session of 2023. No big impact news has been a significant catalyst yet, but the resurgence in market volatility and activity is likely to favor the greenback.

Various major currencies cluck against the US dollar. EUR/USD, AUD/USD, and NZD/USD each fell more than 0.8 percent at the end of the European session. GBP/USD also continues to be under pressure in the 1.2020s range. The US dollar was only weaker against the yen, with USD/JPY dipping around the 130.40s for the second day in a row.

"FX revived this morning with the dollar off the beaten path," said Kenneth Broux, an analyst at Societe Generale, "The average reversal in (bond) yields and dollar moves occurred for the day without any fresh macro news... this suggests that Rising yields and weaker dollar last week have been exaggerated and correlated with a lack of year-end liquidity."

Seasonal trends show that the US Dollar strengthens each January so that rival currencies are threatened with further weakening. However, market perceptions, central bank decisions, and economic developments will continue to affect the US dollar exchange rate.

In the short term, market participants will need to keep an eye on the release of the FOMC meeting minutes on Wednesday and the Nonfarm Payrolls data on Friday. The results of the December FOMC meeting revealed the Fed's intention to maintain high-interest rates for a more extended period to control inflation. The market will examine the background of the Fed's opinion in its minutes and measure the suitability of the policy plan with the latest economic conditions.