Forex
Euro hits lowest in 6-1/2 months vs dollar on tariff worries
By Stefano Rebaudo
(Reuters) – The euro dropped to its lowest level in 6-1/2 months against the greenback on Monday (NASDAQ:) as investors worried about possible U.S. tariffs that would hurt the euro area’s economy.
Meanwhile the — a measure of its value relative to a basket of foreign currencies — slightly overshot the highs seen right after the U.S. presidential election with markets still waiting for clarity about future U.S. policy.
The sensitivity of the euro to the threat of higher U.S. import tariffs was evident late Friday when media reported that President-elect Donald Trump was lining up Robert Lighthizer, seen as a hawk on trade, to run his trade policy, analysts said.
Sources familiar with the matter said Trump has not asked Lighthizer to return to the agency overseeing trade policy.
The single currency was down 0.6% at $1.0657, after hitting $1.0656, its lowest level since May 1. It dropped 0.78% on Friday.
Politics remained under the spotlight after German Chancellor Olaf Scholz paved the way for snap elections. However, the risk of policy changes in Germany which could lead to a looser fiscal policy will be rising next year.
“The thesis for dollar bears now is that it will take a while for tariffs to come through and the Fed recalibration to less restrictive monetary policy,” said Chris Turner, head of forex strategy at ING.
“We disagree and think this clean election result can boost U.S. consumer and business sentiment at the same time as it weighs on business sentiment elsewhere in the world,” he added.
The was 0.45% firmer at 105.44, after hitting 105.50, its highest since July 3. Last week, it jumped more than 1.5% to 105.44, after U.S. presidential election results showed Trump’s victory.
MIXED VIEWS ON THE GREENBACK
Trump “will be less encumbered by the political considerations of having to run for office again,” said Libby Cantrill, head of U.S. public policy at PIMCO.
“However, what look to be narrow congressional margins – potentially historically narrow in the House – could be a check on Trump’s agenda, fiscal and otherwise,” she added.
Measures from the U.S. President-elect — including tariffs and tax cuts — should put upward pressure on inflation and bond yields while limiting the Fed’s scope to ease policy and supporting the greenback.
Lee Hardman, senior currency analyst at MUFG, flagged a media report suggesting earlier this year that Lighthizer was considering weakening the greenback.
“Higher tariffs could be used to force other countries to agree to revalue their currencies against the U.S. dollar,” he said, mentioning the Plaza Accords in 1985.
The Plaza Accords was an agreement between five major economies to depreciate the greenback through coordinated currency market interventions.
The dollar gained 0.8% on the yen to 153.80, having been dragged off last week’s top of 154.70 by the risk of Japanese intervention. On Nov. 6 it hit 154.68, its highest level since July.
A summary of opinions from the Bank of Japan’s October policy meeting showed some members were unsure on when to raise rates also due to political uncertainty.
The rate outlook will be crucial for the greenback while all major central banks ease their monetary policy.
The U.S. bond market is closed for a public holiday on Monday, though stocks and futures are open.
Citi expects U.S. rates to stay close to current levels in the near term as the market is caught between expectations of significant policy changes in 2025 and the easing cycle driven by near-term data.
Disappointment at the latest Chinese stimulus package had seen the Australian and New Zealand dollars slide on Friday.
The U.S. dollar versus the hit its highest since early August at 7.2225, up 0.4% on Monday. It jumped 0.70% on Friday after falling 0.75% the day before.
Highlighting the bleak background in China, data out over the weekend showed consumer prices rose at the slowest pace in four months in October, while producer price deflation deepened.
soared to a record high above $81,000 on Monday on expectations that crypto-currencies will boom in a favourable regulatory environment following the election of Trump as U.S. president and pro-crypto candidates to Congress.
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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