Investing.com– Most Asian currencies weakened on Friday, while the dollar sat near its strongest level in over two years as traders braced for a potentially strong nonfarm payrolls reading due later in the day. 

Regional sentiment was also undermined by weak inflation data from China, while traders speculated over a potential interest rate hike by the Bank of Japan, although this provided only fleeting support to the yen.

The dollar moved little in overnight trade on account of a U.S. market holiday. But the greenback remained upbeat following hawkish signals from the Federal Reserve earlier this week. 

Dollar steady near 2-yr high as nonfarm payrolls loom

The index and both firmed slightly in Asian trade, and were just below their strongest levels since November 2022.

Focus was squarely on data for December, due later on Friday, for more cues on the U.S. economy and interest rates. 

The greenback was buoyed by the minutes of the Fed’s December meeting, released on Wednesday, which reiterated the central bank’s warning that rates will fall at a slower pace this year.

The minutes also showed policymakers concerned over expansionary and protectionist policies under President-elect Donald Trump, which could underpin inflation in the long term.

Japanese yen weakens despite strong spending data 

The Japanese yen reversed Thursday’s gains and softened on Friday, with the pair rising 0.2% and remaining above the 158 yen level.

Stronger-than-expected data released on Friday sparked increased speculation over a January interest rate hike by the Bank of Japan, especially as data released on Thursday showed a bigger-than-expected increase in .

Analysts expect a virtuous cycle of high wages, steady inflation and improving private consumption to spur more rate hikes by the BOJ in the coming months, potentially as soon as the BOJ’s late-January meeting.

But the yen saw fleeting support on this notion, as it came under pressure from the prospect of higher for longer U.S. interest rates.

Broader Asian currencies weakened on Friday on a similar notion, with traders turning especially averse towards the region before the nonfarm payrolls reading. 

The Chinese yuan’s pair rose 0.3%, with the currency seeing continued weakness after soft inflation data for December. The prospect of trade tariffs under Trump also soured sentiment towards China. 

The Australian dollar’s pair fell 0.2% and was close to a two-year low, as mixed inflation data released earlier in the week fueled bets on earlier interest rate cuts by the Reserve Bank.

The South Korean won’s pair rose 0.4% amid continued political strife in the country, while the Singapore dollar’s pair rose 0.1%.

The Indian rupee’s pair steadied below the 86 rupee level.

By Chuck Mikolajczak

NEW YORK (Reuters) -The U.S. dollar strengthened for a third straight session on Thursday as Treasury yields dipped but held at elevated levels on concerns over tariffs under the incoming Trump administration, while sterling’s recent weakness persisted.

U.S. Treasury yields have been on an uptrend, with the benchmark 10-year note hitting an 8-1/2 month high of 4.73% on Wednesday as a resilient economy and likely tariffs have rekindled inflation concerns and heightened expectations the Federal Reserve will take a slower path of interest rate cuts.

Recent economic data has shown a labor market on a solid footing and minutes from the Fed’s December meeting showed that policymakers raised new inflation concerns suggesting the new administration’s plans may slow economic growth and increase unemployment.

Investors will eye Friday’s key government payrolls report to gauge how aggressive the central bank will be in cutting interest rates.

“Most of the economic readings that have come in have been a little stronger than expected so if we get a non-farm payrolls tomorrow that is stronger than what’s expected that’s another indicator that the economy is not cooling off and that inflation is going to get more pressures,” said Joseph Trevisani, senior analyst at FX Street in New York.

“We’re also going to get the Trump administration which is going to change all sorts of things,” Trevisani added.

The , which measures the greenback against a basket of currencies, rose 0.12% to 109.15, with the euro down 0.16% at $1.0301.

Federal Reserve Bank of Boston President Susan Collins said on Thursday that significant uncertainty over the outlook calls for the central bank to move forward cautiously with future rate cuts while Philadelphia Federal Reserve President Patrick Harker said he still expects rate cuts, but any sort of imminent move down is not needed amid considerable uncertainty over the economic outlook.

In addition, Kansas City Federal Reserve President Jeff Schmid said he believes rates are near the point where the economy needs “neither restriction nor support,” while Fed Governor Michelle Bowman said the incoming administration’s future policies should not be prejudged.

Sterling weakened 0.46% to $1.2306, on track for a third straight session of declines after hitting its lowest level since Nov. 13, 2023 with Britain’s finance minister under pressure as concerns over Trump’s policies have pushed the British government’s borrowing costs higher.

Bank of England Deputy Governor Sarah Breeden said a rate cut was supported by recent evidence, although it was difficult to know how quickly.

Erik Nelson, macro strategist at Wells Fargo (NYSE:) sees a risk of continued underperformance in the pound while UK gilt yields begin to turn lower.

The Japanese yen strengthened 0.17% to 158.06 per dollar. Government data on Thursday showed Japan’s inflation-adjusted real wages fell for the fourth straight month in November, weighed down by higher prices even as base pay grew at the fastest pace in more than three decades.

Analysts at Goldman Sachs believe the discussions at the January branch managers meeting support their view of a January rate hike from the Bank of Japan.

The U.S. stock market was closed on Thursday. U.S. bond markets were set for an early close for former president Jimmy Carter’s (NYSE:) funeral.

Investing.com – The US dollar edged higher Friday, holding on to recent gains ahead of the release of the highly influential monthly jobs report, while sterling continued to retreat.

At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 109.040, on course for a weekly gain of 0.3%.

This would be its sixth consecutive weekly gain, its longest run since an 11-week streak in 2023. 

Dollar retains strength ahead of payrolls 

The dollar traded near its strongest levels since November 2022, holding on to recent gains as the US returned from a holiday to honor former President Jimmy Carter.

The focus was squarely on data for December, due later in the session, as traders look for more cues on the US economy and the future path of interest rates. 

The of the Fed’s December meeting, released on Wednesday, showed policy makers remain concerned over the potential for inflation to flare up again, especially given the likely impact of the expansionary and protectionist policies under President-elect Donald Trump.

US nonfarm payrolls data is expected to show the economy added 154,000 jobs in December on top of the 227,000 in November, with holding at 4.2%.

Anything stronger would add to the case for fewer Federal Reserve rate cuts in 2025, boosting the dollar.

“We think the balance of risks is tilted to the upside for the dollar today, as robust jobs figures could prompt markets to price out a March cut and potentially push the first fully-priced move beyond June,” said analysts at ING, in a note.

“We would still argue that with inflation concerns back on the rise – although the Fedspeak has been quite heterogeneous on that topic – next Wednesday’s CPI report could have deeper market ramifications.”

Sterling set for hefty weekly loss

In Europe, edged higher to 1.0303, helped by data showing that rose 0.2% on the month in November, an improvement from the prior month’s drop of 0.3% and above the fall of 0.1% expected.

That said, the euro remains weak, with the European Central Bank widely expected to ease interest rates by around 100 basis points in 2025, around double the cuts expected by the US central bank, with the regional economy still very weak.

“Markets are pricing a good deal of negatives into the euro at this stage, and perhaps the euro may be penalised less than other G10 currencies should US payrolls come in strong today,” ING added.

traded 0.2% lower to 1.2285, with sterling on course to lose 1% this week after earlier falling to a 14-month low following a selloff in UK government bonds amid concern about British finances.

“We expect higher yields to act as an additional headwind to growth via household remortgaging and weaker investment,” said analysts at Goldman Sachs, in a note.

“The rise in gilt yields reinforces our view that UK growth will disappoint in 2025, with our 0.9% real GDP growth forecast notably below consensus (1.4%), the BoE (1.5%) and the OBR (2%).”

Yuan lacks support

In Asia, rose 0.3% to 7.3513, with the Chinese currency seeing continued weakness after soft inflation data for December, released earlier in the week. 

The prospect of trade tariffs under Trump also soured sentiment towards China. 

dropped 0.1% to 157.85, with the Japanese currency helped by the release of stronger-than-expected data earlier Friday.

This followed on from a bigger-than-expected increase in wage growth on Thursday, and has sparked increased speculation over a January interest rate hike by the Bank of Japan.