"The dollar is benefiting from 'feel good' somewhat, from the out-of-the-ball-park GDP," said Michael Woolfolk, senior strategist at BNY Mellon. "But there is some trepidation ahead of non-farm payrolls next week." Without jobs growth to drive consumer spending, any economic recovery will be tepid even with a few non-sequential months of strong growth. The government is to report January non-farm payrolls on Friday.
The euro fell 1.9 percent against the dollar this week, the worst week since ended December 20, while the dollar rose 0.2 percent against the yen. The euro's drop against the dollar, however, has been largely due to ongoing concerns about fiscal problems in Greece and the potential cost of a bailout to the more robust euro zone partners.
While Greece is maintaining it can resolve its debt problems internally, any failure of Greece to become financially stable would put into question the stability of the euro zone as a whole. "I'd have to reckon with a higher dollar in the coming weeks," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.
"The whole market outlook seems to have shifted in the last couple of weeks, starting with China stepping on the brakes a bit and credit worries in the euro zone." China has ordered a rise in some banks' reserves in a bid to curb lending and head off inflation. That will curb rallies in commodity bloc currencies in favour of the US dollar.
The week ahead is heavy with top tier data for investors to peruse and expectations for volatility are high. On Monday, the week opens with December personal income, personal consumption and the core PCE price index. Personal income and personal consumption are seen rising 0.3 percent, while the core PCE price index is forecast to rise 0.1 percent.
The same day a report on December construction spending is forecast to show a drop of 0.5 percent. The final report on Monday is the ISM manufacturing index, which is expected to come in at a reading of 55.0. Tuesday, investors focus again on housing with the release of pending home sales for December, forecast to rise 1.5 percent.
Wednesday has labour data including the Challenger layoff report for January and the ADP national employment report for the same month, with the latter expected to show a loss of 40,000 jobs. Later that day, the ISM services index for January is forecast to post at a reading of 50.8.
Thursday's releases include initial weekly jobless claims, December factory orders, expected to rise 0.6 percent and revisions to December's durable goods report. On Friday, the week's data highlight, the non-farm payrolls report for January, is forecast to show 5,000 new jobs with the unemployment rate holding steady at 10.0 percent.
"If reports keep surprising on the positive side next week, it will be a sign we are starting the year on a very strong note and that should be play out in the dollar-yen trading dynamic," said Boris Schlossberg, director for currency research at GFT in New York.