The US dollar made a feeble start to 2026 on Friday after struggling against most currencies last year, while the yen steadied near 10-month lows as traders awaited economic data this month to gauge the path of interest rates.

A dwindling interest rate difference between the US and other economies has cast a shadow over the currency market, resulting in most currencies gaining sharply against the dollar in 2025, with the yen an exception.

The euro was steady at $1.1752 in early Asian hours after surging 13.5% last year, while sterling last bought $1.3474 following a 7.7% increase in 2025.

Both currencies clocked their steepest annual rises since 2017.

The yen was last at 156.74 per US dollar after rising less than 1% against the greenback in 2025 and hovering close to the 10-month low of 157.90 it touched in November, which sparked worries of intervention from Tokyo.

The dollar index, which measures the US currency against six other units, was at 98.243 after registering a 9.4% decline in 2025, its biggest drop in eight years as interest rate cuts, erratic trade policies and worries about the Federal Reserve’s independence under the Trump administration weighed.

Economic data, including the US payrolls report and jobless data, are due next week and will provide clues on the health of the labour market and where US rates may end up this year.

Much of the focus in the early part of the year will also be on who US President Donald Trump picks to be the next Fed Chair as current head Jerome Powell’s term ends in May.

Investors are bracing for Trump’s pick to be more dovish and cut rates after Trump repeatedly criticised the Fed and Powell last year for not cutting rates more swiftly or deeply.

Traders are pricing in two rate cuts in the year compared to one predicted by a divided Fed.

“We expect that concerns around central bank independence will extend into 2026, and see the upcoming change in Fed leadership as one of several reasons why risks around our Fed funds rate forecast skew dovish,” Goldman strategists said.