The US dollar posted gains against nearly all its major peers as trading kicked off in 2023 after a seasonal holiday lull.

Only the Japanese yen proved stronger than the greenback among Group-of-10 currencies, with the pound, euro and Swiss franc falling sharply. That saw the Bloomberg dollar spot index climb as much as 0.9%, putting it on track for its best day since mid-December.

Traders said the moves were exacerbated by thin liquidity. But it was also a reminder that the dollar’s decline in recent months — which is broadly expected to keep going this year — will not be a one-way move.

“From a re-balancing perspective, the US dollar ended the year a bit overdone,” said Geoff Yu, senior currency strategist at Bank of New York Mellon. That implies “a bit of recovery flow happening almost by default.”

The Bloomberg spot index fell 6.8% between October and December 2022 as traders slashed long-dollar positions, its worst quarterly performance for more than a decade. While Yu sees further weakness, he’s “highly skeptical” that the Federal Reserve can cut interest rates this year, which could help temper a longer-term drop.

Traders will scour new data this week for clues on the state of the US economy. Signs were building last year that an aggressive cycle of rate hikes was starting to bring down red-hot inflation, though wage gains remain strong, suggesting higher rates for longer.

The Australian dollar led losses against the greenback, down 1.4% to 0.6707. The yen bucked the trend to advance, reflecting bets on tighter policy from the Bank of Japan after its surprise December decision to tweak its yield curve control settings.

The currency pared gains in European hours to trade up 0.2% at 130.59, after earlier appreciating nearly 1% to the strongest since early June. With Japanese financial markets still shut for new-year holidays, currency flows doubled since the London open, according to Ian Tew, head of G-10 currency spot trading for EMEA at Barclays Plc.

“We’re looking at an uncertain 2023 and many macro themes will dictate market narratives — today feels like an unwind of short-term December positions, rather than anything fundamental to start the year,” Tew said. “The overwhelming flow has been for yen calls in the option space, but we have also seen dollar demand from hedge funds.”