Published by Ankur Banerjee
SINGAPORE (Reuters) – The U.S. dollar advanced on Thursday supported by a rise in Treasury yields, putting the yen, sterling and euro under pressure near multi-month levels amid the threat that increasing in taxes.
The focus for markets in 2025 has been on US President Donald Trump's policies as he steps back into the White House on January 20, with analysts expecting his policies to strengthen both growth and add it to price pressures.
CNN reported Wednesday that Trump is considering declaring a national economic emergency to provide legal justification for a series of universal tariffs on friends and foes. On Monday, the Washington Post said that Trump was looking at more serious taxes, which he later denied.
The growing threat of tariffs has led to higher bond yields, with the yield on the 10-year US Treasury note hitting 4.73% on Wednesday, the highest since April 25. It was at 4.6769% in Asian hours.
“Trump's moving statement on tariffs has undoubtedly impacted the USD. This capriciousness seems to be something markets will have to accept over the next four years,” said Kieran Williams, head of Asia FX at InTouch Capital Markets.
“While tariff talks are likely to support the USD in the short term, they also introduce complications with unknown consequences. “
The bond market selloff has left the dollar standing high and overshadowing the currency market.
The euro fell to $1.03095, staying close to the two-year low it hit last week as investors remain concerned that the single currency could fall to the key $1 mark this year due to tariff uncertainty.
The pound was little changed at $1.2353 in early Asian trade, after hitting its weakest since April on Wednesday as British government bond yields hit multi-year highs.
“Clearly there is reason to keep a close eye on the UK bond market, and the recent trend is certainly a cause for concern,” said Chris Weston, head of research at Pepperstone.
“However, we can take some assurances that the Bank of England is more prepared this time and has been reviewing the tools to step in if we see a dysfunctional market resulting from a market liquidity event gilt ”
The fall in both sterling and gilt prices was much sharper in September 2022 due to the turmoil following Prime Minister Liz Truss's “mini-budget”.
That left the , which measures the US currency against six other units, at 109.03, just shy of the two-year high it touched last week. The index gained 7% last year as traders adjusted expectations for a measured pace of US rate cuts.
The Federal Reserve last month shocked markets by predicting two rate cuts for 2025, down from four it had previously said, due to concerns about inflation as well as the Trump administration's policies.
Minutes of the December meeting, released on Wednesday, showed the central bank was expressing renewed inflation concerns and officials saw a growing risk that the incoming administration's plans for economic growth could reduce and raise unemployment.
The yen was at 158.2 per dollar, after touching a nearly six-month low of 158.55 on Wednesday, approaching the key 160 mark that led to Tokyo entering the market last July.
The yen fell more than 10% against the dollar last year and is off to a strong start to 2025, with traders eyeing another intervention ahead of the Bank of Japan's meeting later in the day. month.
Data on Wednesday showed that Japanese consumer sentiment had weakened in December, casting doubt on the central bank's view that tough household spending will underpin the economy and justify a rise in interest rates.
