Forex
Dollar snaps back after three-day slide as investors await cues on Trump policies
By Medha Singh and Kevin Buckland
(Reuters) -The U.S. dollar advanced on Wednesday, resuming its post-election rally after a three-day slide as investors awaited more clues on U.S. President-elect Donald Trump’s proposed policies, while the Japanese yen slid as safe-haven demand faded.
The previous day’s boost to the dollar and other traditional safe-haven currencies like the yen on geopolitical concerns proved short-lived, after Russia’s foreign minister said the country would “do everything possible” to avoid the onset of nuclear war, hours after Moscow announced it would lower its threshold for a nuclear strike.
The Russia-Ukraine “fears have died back but the market will be sensitive to any fresh news on that front”, said Jane Foley, head of FX strategy, at Rabobank in London.
The Japanese yen dropped to 155.815 against the greenback, retracing the previous day’s gains. The yen’s recent slide to a three-month low upped bets of a likely hawkish shift at the Bank of Japan as it nears levels that drew intervention in July.
Foley said 155 was the dollar-yen level that made markets nervous of intervention, adding that “if there is the possibility that verbal intervention is having a significant impact in stabilizing the currency pair, then that is likely to deter the ministry of finance, at least for a while, from using actual intervention”.
BOJ Governor Kazuo Ueda made only passing mention of the currency earlier this week.
The – which measures the currency against six major peers – advanced 0.5% to 106.59, recovering from a three-day slide.
The index hit a one-year high of 107.07 on Thursday last week, buoyed by expectations for big fiscal spending, higher tariffs and tighter immigration under the incoming U.S. administration, measures which economists say could foster inflation and potentially slow Federal Reserve easing.
“Having priced in a lot of the Trump trade, we might be in consolidation phase until early January when Trump does take the reins and we get a firmer idea of the detail of the policy,” Foley said.
‘TRUMP TRADE’
Investors are still waiting for Trump to name a Treasury Secretary, one of the highest-profile cabinet posts overseeing the country’s financial and economic policy. Some of Trump’s other picks have provoked controversy for their relatively meagre relevant experience.
“The ‘Trump Trade’ that boosted the greenback is facing challenges from Trump’s controversial cabinet nominations and the escalation in the Russian-Ukraine war,” DBS strategists wrote in a client note.
For the dollar over longer term though, “more weight should be put on firm economic data and the increasing likelihood that the Fed may have to slow the rate cut path even more in 2025”, they said.
Traders continue to pare back expectations for an interest-rate cut at the Fed’s next meeting in December, with bets now at 55.5%, down from 82.5% a week ago, according to CME’s FedWatch Tool.
Sterling got a brief boost before paring those gains as data showed stronger than expected jump in British consumer inflation in October supports the view that the Bank of England will lower interest rates only gradually in the coming months.
Traders currently see an 84% chance that the BoE will hold rates steady at its policy meeting next month.
The pound was last down 0.1% at $1.26695.
The euro dipped 0.4% to $1.0559, from far from the previous session’s low of $1.0524.
hovered near the all-time peak above $94,000 it hit overnight, carried by expectations for a friendlier regulatory environment for cryptocurrencies under Trump.
A report said Trump’s social media company was in talks to buy crypto trading firm Bakkt, bolstering hopes of a cryptocurrency-friendly regime under his administration.
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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