Forex
Dollar steady, while yen strengthens ahead of BOJ meeting
Investing.com – The U.S. dollar traded in a stable fashion in Europe Tuesday, while the yen soared in the wake of suspected intervention by the government last week.
At 05:40 ET (09:40 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, edged 0.1% higher to 104.067, bouncing from last week’s four-month low.
Dollar takes a breather
The dollar steadied Tuesday, with traders appearing to take a breather as they digest the volatile political situation with little in the way of economic data until the release of U.S. personal consumption expenditure inflation figures for June on Friday.
Vice President Kamala Harris appears on course to be the Democratic Party’s presidential nominee, but will still need to be formally nominated.
Still, Republican nominee Donald Trump was seen polling ahead of Biden and Harris as of last week, CBS and HarrisX data showed.
Expectations of a Trump presidency has resulted in some strength in the dollar, as analysts said he would be likely to enact protectionist trade policies.
The main economic data release this week will arrive on Friday, with June’s index set to test market expectations that the Federal Reserve is all but certain to cut interest rates in September.
Euro lower ahead of key activity data
In Europe, fell 0.2% to 1.0873, drifting lower ahead of key activity data later in the week.
While economic growth in the eurozone remains sluggish, strength in the dominant services sector, boosted by tourism, has kept price pressures uncomfortably high.
This has posed a challenge to the ECB, so data on Wednesday will be closely watched after the kept interest rates on hold at 3.75% last Thursday and resisted offering future guidance, saying it was “data-dependent.”
Markets are pricing in almost two ECB rate cuts for the rest of the year.
traded 0.1% lower at 1.2919, falling back from the 1.30 level that the pair saw last week for the first time in a year.
The pound has received a boost from the political stability brought about by the Labour Party’s dominant electoral victory at the start of this month.
However, at the heart of this latest leg higher in the pound is the belief that British interest rates will take longer to decline than those elsewhere.
Many big central banks have started cutting rates, with the and the U.S. Federal Reserve among the last still standing still.
Data earlier this month showed that remains stubbornly high, pushing the likely starting date of the BOE’s rate-cutting cycle from August to later in the year.
Yen strengthens ahead of BOJ meeting
In Asia, fell 0.7% to 155.94, not far from Thursday’s five-week low of 155.375, with the yen continuing to strengthen against the dollar after suspected intervention by the government last week.
A senior member of the Japanese government called for more clarity on interest rate hikes by the Bank of Japan, the reported on Tuesday. The comments come just a week ahead of a , where some analysts expect the bank to hike interest rates by 10 basis points.
edged higher to 7.2743, remaining close to levels last seen in November.
The currency was battered by increasing uncertainty over the Chinese economy, especially after recent data showed it grew less than expected in the second quarter.
Investing.com – The US dollar rose in thin holiday-impacted trade Tuesday, retaining recent strength as traders prepared for fewer Federal Reserve rate cuts in 2025.
At 04:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 107.905, near the recently hit two-year high.
Dollar remains in demand
The dollar has been in demand since the Federal Reserve outlined a hawkish outlook for its interest rates after its last policy meeting of the year last week, projecting just two 25 bp rate cuts in 2025.
In fact, markets are now pricing in just about 35 basis points of easing for 2025, which has in turn sent US Treasury yields surging, boosting the dollar.
The two-year Treasury yield last stood at 4.34%, while the benchmark 10-year yield steadied near a seven-month high at 4.59%.
“We think this hawkish re-tuning of the Fed’s communication will lay the foundation for sustained dollar strengthening into the new year,” said analysts at ING,in a note.
Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.
Euro near to two-year low
In Europe, fell 0.1% to 1.0396, near a two-year low, with the set to cut interest rates more rapidly than its US rival as the eurozone struggles to record any growth.
The ECB lowered its key rate earlier this month for the fourth time this year, and President Christine Lagarde said earlier this week that the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.
“If the incoming data continue to confirm our baseline, the direction of travel is clear and we expect to lower interest rates further,” Lagarde said in a speech in Vilnius.
Inflation in the eurozone was 2.3% last month and the ECB expects it to settle at its 2% target next year.
traded largely flat at 1.2531, with sterling showing signs of weakness after data showed that Britain’s economy failed to grow in the third quarter, and with Bank of England policymakers voting 6-3 to keep interest rates on hold last week, a more dovish split than expected.
Bank of Japan stance in focus
In Asia, fell 0.1% to 157.03, after rising as high as 158 yen in recent sessions, after the signaled that it will take its time to consider more interest rate hikes.
edged 0.1% higher to 7.3021, remaining close to a one-year high as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
Investing.com– Most Asian currencies moved in a tight range on Tuesday, while the dollar extended overnight gains as traders positioned for a slower pace of interest rate cuts in the coming year.
Trading volumes were muted before the Christmas break, while most regional currencies were nursing steep losses against the greenback for the year.
Asian currencies weakened sharply last week after the Federal Reserve effectively halved its outlook for rate cuts in 2025, citing concerns over sticky U.S. inflation.
Dollar near 2-year high on hawkish rate outlook
The and both rose about 0.1% in Asian trade, extending overnight gains and coming back in sight of a two-year high hit last week.
While the greenback did see some weakness after data read lower than expected for November, this was largely offset by traders dialing back expectations for interest rate cuts in 2025.
The Fed signaled only two rate cuts in the coming year, less than prior forecasts of four.
Higher U.S. rates diminish the appeal of risk-driven Asian markets, limiting the amount of capital flowing into the region and pressuring regional markets.
Asia FX pressured by sticky US rate outlook
Most Asian currencies weakened in recent sessions on the prospect of slower rate cuts in the U.S., while uncertainty over local monetary policy and slowing economic growth also weighed.
The Japanese yen’s pair fell 0.1% on Tuesday after rising as high as 158 yen in recent sessions, after the Bank of Japan signaled that it will take its time to consider more interest rate hikes.
The Australian dollar’s pair fell 0.2% after the minutes of the Reserve Bank’s December meeting showed policymakers saw an eventual easing in monetary policy, citing some progress in bringing down inflation. But they still flagged potential upside risks for inflation.
The Chinese yuan’s pair rose 0.1% and remained close to a one-year high, as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
The Singapore dollar’s pair rose 0.1%, while the Indian rupee’s pair rose 0.1% after hitting record highs above 85 rupees.
Investing.com — The dollar has surged past its post-2022 range, buoyed by U.S. economic exceptionalism, a widening interest rate gap, and elevated tariffs, setting the stage for further gains next year.
“Our base case is that the dollar will make some further headway next year as the US continues to outperform, the interest rate gap between the US and other G10 economies widens a little further, and the Trump administration brings in higher US tariffs,” Capital Economics said in a recent note.
The bullish outlook on the greenback comes in the wake of the dollar breaking above its post-2022 trading range, reflecting renewed confidence among investors driven by robust U.S. economic data and policy expectations.
A key risk to the upside call on the dollar is a potential economic rebound in the rest of the world, similar to what occurred in 2016, Capital Economics noted.
Following the 2016 U.S. election, economic activity in the rest of the world rebounded, while Trump’s tax cuts didn’t materialize until the end of 2017, and the Fed took a more dovish path than discounted, resulting in a 10% drop in the DXY on the year, which was its “worst calendar year performance in the past two decades,” it added.
While expectations for a recovery in Europe and Asia seem far off, a positive surprise for global growth “should be ruled out”, Capital Economics said.
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