Investing.com – The US dollar rose on Thursday, supported by a rise in Treasury yields after hawkish comments from the Federal Reserve and strong economic data fueled bets on a slower pace of rate cuts.
At 04:35 ET (09:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading largely unchanged at 108.920, just shy of the two year senior he spoke to last week.
Trading ranges are likely to be limited on Thursday, with US traders on holiday to honor former President Jimmy Carter, with a state funeral due later in the session.
Dollar retains strength
The Fed's December meeting showed policymakers increasingly targeting a slower pace of rate cuts in 2025 amid fresh inflation concerns, while recent jobs data has highlighted underlying strength in the labor market.
In addition, Fed officials saw a growing risk that the incoming Trump administration's plans could slow economic growth and raise unemployment.
This has seen the yield on the 10-year US Treasury note hit its highest level since April in recent days.
“The market is now pricing in a stop at the January 29 meeting and is not pricing in a full 25bp cut until June,” said analysts at ING, in a note. “We have five Fed speakers later today, but the next big impact on expectations from the Fed easing cycle will be in the December NFP report tomorrow, where some see upside risks.”
“Likewise, the dollar is likely to remain strong into Trump's inauguration on January 20.”
Germany's economic weakness depends on the euro
In Europe, it fell 0.1% to 1.0306, staying close to the two-year low it hit last week on recent signs of economic weakness, especially in Germany, the region's largest economy.
and rose more than expected in November, according to data released earlier on Thursday, but the outlook for the euro area's largest economy remains weak.
Exports increased by 2.1% in November, while industrial production rose by 1.5% in November compared to the previous month.
However, “unfortunately this rebound in business activity is coming too late to avoid another quarter of stagnation or even contraction,” said Carsten Brzeski, global head of macro at ING.
This is expected to reduce interest rates by around 100 basis points in 2025, and this, with US tax concerns, could see the single currency fall to parity with the US dollar this year.
traded 0.5% lower to 1.2296, falling to its weakest level since April on concerns about the UK bond market as British government bond yields hit multi-year highs.
“The gilt sell-off has…denied that confidence in sterling and the danger now is that sterling currencies will be found as investors reassess true independence ,” said ING.
Yuan weakens after inflation data
In Asia, it rose 0.3% to 7.3542, with the Chinese currency still near its weakest levels in 17 years after barely growing in December, while the decline was for the 27th month after month.
The print showed little progress in China's long-running deflationary movement, and pointed out that Beijing likely needs to do more to boost economic growth.
fell 0.2% to 158.08, with the Japanese currency boosted by average silver earnings data reading stronger than expected in November.
The data added to the idea of a virtuous circle in the Japanese economy – that rising wages will underpin inflation and give the Bank of Japan more incentive to raise interest rates sooner, rather than later.
