Dollar Extends Gains on Strong U.S. Services Data

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The dollar extended gains after the U.S. economy showed some unexpected strength in December.

The Institute for Supply Management (ISM) reported that aggregate services activity demonstrated expansion in December 2025, rising to 54.4%, beating a consensus estimate of 52.2%.

"Services industry strength was demonstrated across critical components of the survey, including Employment, current Business Activity, and New Orders," says Kurt Rankin, Senior Economist at PNC, the U.S. bank.

The services sector is far and away the largest in the U.S. economy, confirming a solid end to the year. For markets, this suggests there's little rush for the Federal Reserve to lower interest rates again, which is supportive of U.S. bond yields and the dollar.

The Fed will be particularly interested in hearing that hiring among service industry businesses expanded for the first time since May.

This goes against the recent trend of softening U.S. employment dynamics.

The Fed fears that the labour market is weakening and has responded by lowering interest rates. Further evidence of such weakening would have encouraged market confidence that further rate cuts are coming in 2025.

To be sure, they probably are, but this ISM survey data does cast some doubt, and that's enough doubt to help the dollar stage a comeback and pressure GBP/USD to 1.3471, down from the previous day's high at 1.3567.

EUR/USD is at 1.1689, having been at 1.1742 on Tuesday. AUD/USD trades at 0.6734, having spiked as high as 0.6766 earlier in the day.

The next big major data challenge to the dollar comes on Friday with the release of the U.S. non-farm payroll report, where further confirmation of a cooling labour market should be provided.

As today's upside surprise shows, and a stronger-than-expected print would help the dollar and extend it's mini-recovery into the weekend.