Forex
Dollar rock solid as benchmark Treasury yield passes 5%, yen in focus
© Reuters. FILE PHOTO: Banknotes of Japanese yen and U.S. dollar are seen in this illustration picture taken September 23, 2022. REUTERS/Florence Lo/Illustration/File Photo
By Vidya Ranganathan and Alun John
SINGAPORE/LONDON (Reuters) -The moved above 5% on Monday, keeping the dollar supported across the board but without pushing it much higher, while earlier in the day Japan’s yen weakened briefly past the 150-per-dollar level.
Investors are waiting for several events this week, including a European Central Bank meeting, and the release of U.S. GDP data and the Federal Reserve’s preferred inflation gauge.
But the main news on Monday was the yield on 10-year U.S. Treasuries reaching as high as 5.021%, the latest stage of a relentless sell-off in government bond markets, driven by investors accepting central banks will keep rates persistently high, particularly in the United States, an increase in supply of bonds and widening term premia.
Besides that, the risk of Israel’s war on the Islamist group Hamas becoming a wider regional conflict is keeping markets on edge, as Israeli air strikes battered Gaza early on Monday, and the United States dispatched more military assets to the region.
The was steady at 106.1, with the euro up 0.1% at $1.06075, and sterling flat at $1.2170.
Even though it hasn’t risen lockstep with yields, the dollar has been underpinned by the steady rise in yields at the long end of the U.S. Treasuries curve.
Since mid-July, the trade-weighted dollar index is up 6.7% but has been nearly steady this month.
“On paper, it should be a good week for the dollar. US GDP should come in at over 4% and the Fed’s preferred measure of inflation should still be running hot,” said Chris Turner, ING’s global head of markets.
“In Europe, PMIs and the ECB bank lending survey should show an economy mired in stagnation, if not recession.”
Barclays analysts were less sure the dollar had much further to go, however, pointing to stretched long dollar positioning and a smaller likelihood of further rises in long-dated yields without a reassessment of the Fed’s rate outlook.
The Japanese yen last traded at 149.95 per dollar, after briefly easing early on Monday to 150.14, a level last seen on Oct. 3 when traders suspected the Bank of Japan (BOJ) intervened to nudge it back to the stronger side of 150.
The BOJ’s money market data later suggested that the yen’s sudden strengthening was most likely not the product of official Japanese intervention.
Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo, said it seemed like a set of investors were betting the BOJ would defend the 150 level, even as others saw rising U.S. yields as a reason to keep pushing the dollar up.
“Potentially there are two camps out fighting around 150, so that’s why dollar-yen doesn’t move from here,” Yamamoto said.
While there was some speculation the BOJ might once again tweak its yield-curve policy band at a scheduled policy review next week, the BOJ had also shown it would not let domestic yields rise sharply, he said.
The recent surge in global interest rates is heightening pressure on the BOJ to adjust its bond yield control stance next week, with a hike to an existing yield cap set just three months ago being discussed as a possibility, Reuters reported on Monday.
The ECB meets on Thursday, and a poll by Reuters shows while it is done raising rates it won’t begin easing until at least July 2024. It raised its key interest rates by 25 basis points in September.
However, in more positive news for the European common currency, on Friday S&P upgraded Greece’s credit rating to investment grade, the first of the “big three” ratings agencies to do so since the country’s debt crisis erupted in 2010.
Investing.com – The US dollar edged lower Thursday as traders eased into the new year, but the greenback remained near the two-year high seen earlier in the week and was likely to stay supported near term given the more hawkish Fed stance and expectations for the incoming Donald Trump administration.
At 04:45 ET (09:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 108.215, but remained close to the two-year high touched on Tuesday.
Dollar to remain in demand in 2025
The index rose 7% in 2024 as traders drastically cut back Fed rate-cut expectations in the wake of the projections of the policymakers after the December policy-setting meeting.
The US central bank projected just two 25 bp rate cuts in 2025 at its last policy meeting of the year, a sharp reduction from the four cuts it had indicated in September.
In fact, markets are currently only pricing in 42 bps of cuts from the US central bank in 2025, with the return of Donald Trump to the White House adding a degree of uncertainty given his policies of looser regulation, tax cuts, tariff hikes and tighter immigration are seen as both pro-growth and inflationary.
Focus turns to the release later in the session of weekly numbers as well as the December number, for clues towards the strength of the US economy.
Euro could be heading for parity vs dollar
In Europe, edged 0.1% higher to 1.0364, after dropping more than 6% in 2024.
Data released earlier Thursday showed that manufacturing activity in the eurozone declining at a faster rate at the end of the year, offering scant signals of an imminent recovery.
HCOB’s final , compiled by S&P Global, dipped to 45.1 in December, with the downturn broad-based as the bloc’s three largest economies – Germany, France and Italy – were stuck in an industrial recession.
Traders expected more interest rate cuts from the European Central Bank in 2025, with markets pricing in 113 basis points of easing, much more than the Federal Reserve.
This divergence in Fed & ECB policy “will push the euro to parity vs the dollar in the course of 2025,” said analysts at ABN Amro, in a note.
traded 0.2% lower to 1.2494, having fallen 1.7% last year, but was nevertheless the best-performing G10 currency versus the dollar.
UK rose in December, according to mortgage lender Nationwide, jumping by 0.7% in monthly terms during December, following a 1.2% increase in November.
The resilience of the UK housing market has surprised many given indications of weakening activity across the wider economy, with prices ending the year 4.7% higher than their level of December 2023, up from 3.7% in November – the highest annual growth rate since late 2022.
The held interest rates unchanged last month after consumer prices rose above target, and this central bank is likely to remain more cautious than its eurozone counterpart in 2025.
Slowing Chinese manufacturing growth
In Asia, rose 0.4% to 7.3265, climbing to its highest level in over a year after data showed that the country’s manufacturing sector grew less than expected in December.
The reading came just days after government PMI data also showed weaker-than-expected growth in the manufacturing sector.
The prints ramped up concerns over a slowing economic recovery in China, with recent stimulus measures having provided only limited support.
traded 0.3% lower to 156.82, slipping slightly after surging to a five-month high of nearly 158 in recent sessions on the back of a mostly dovish outlook for 2025 from the Bank of Japan.
Investing.com– Most Asian currencies moved in a flat-to-low range on Thursday as the prospect of slower U.S. interest rate cuts in 2025 kept traders averse to regional markets.
The Chinese yuan was among the worst performers for the day as purchasing managers index data showed support from stimulus measures rolled out in recent months was now petering out.
Regional trading volumes were still limited, as major markets such as Japan remained closed for the New Year holidays.
The dollar remained upbeat, benefiting from expectations of a slower pace of rate cuts by the Federal Reserve in 2025, while protectionist policies under incoming President Donald Trump are also expected to favor the greenback.
The and moved little in Asian trade, but were at their highest levels since November 2022.
Chinese yuan slips as manufacturing PMIs disappoint
The Chinese yuan weakened on Thursday, with the pair rising 0.3% to 7.3190 yuan- its highest level in over a year.
data showed that the country’s manufacturing sector grew less than expected in December as support from recent stimulus measures ran dry.
The reading came just days after data also showed weaker-than-expected growth in the manufacturing sector.
The prints ramped up concerns over a slowing economic recovery in China, with recent stimulus measures having provided only limited support. Increased trade headwinds under Trump are also expected to pressure the Chinese economy, although Beijing is expected to dole out more fiscal stimulus to offset this trend.
Asia FX nurses losses in 2024
Most Asian currencies steadied on Thursday after mostly logging losses through 2024. A bulk of these losses also came in recent months, as the prospect of slower rate cuts and more protectionist U.S. policies saw traders largely favor the greenback.
The Japanese yen was among the worst hit by this trade, as a mostly dovish outlook for 2025 from the Bank of Japan added to pressure on the currency. The yen’s pair moved little on Thursday after surging to a five-month high of nearly 158 yen in recent sessions.
The South Korean won firmed on Thursday, but was among the worst performing Asian currencies in 2024. The won’s pair rose nearly 15% in 2024, with heightened political turmoil in the country adding to pressure on the won.
The Singapore dollar’s pair fell 0.2% on Thursday, benefiting from gross that showed the economy grew more than expected in 2024, at 4%.
But slowed sharply in the fourth quarter, raising doubts over the island state’s economic outlook in the coming quarters.
The Australian dollar’s pair rose 0.5% after sliding to a more-than one-year low, while the Indian rupee’s pair fell 0.3% after hitting a record high of 86 rupees this week.
MEXICO CITY (Reuters) – Mexico’s peso weakened nearly 23% this year to close the final day of trading at 20.82 pesos per U.S. dollar on Tuesday, the currency’s deepest drop against the greenback since the 2008 global financial crisis.
The peso’s volatile year kicked off with months of steady gains until the days following June’s general election, which swept the leftist coalition led by the ruling Morena party to a resounding victory in the presidential race as well as large congressional majorities.
Ahead of the election, the Mexican currency traded in April at about 16.26 pesos per dollar to reach a nine-year high.
The election win for Morena paved the way for passage of constitutional reforms in September, including a major overhaul of the judiciary that critics argue will undermine the independence of the courts in Latin America’s second-biggest economy.
The election of U.S. President-elect Donald Trump in November exacerbated the peso’s rocky ride, amid his fresh tariff threats against Mexico, which sends around 80% of its exports to its northern neighbor.
Mexico’s main stock index also shed value during the year, dipping nearly 14% to close on Tuesday at 49,513 points, its steepest fall since 2018.
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