Investing.com – The U.S. dollar steadied on Thursday, supported by a rise in Treasury yields after hawkish comments from the Federal Reserve and strong economic data boosted bets on a slowdown in the pace of interest rate cuts.
At 04:35 EDT (09:35 GMT), the dollar index, which tracks the US currency against a basket of six other currencies, was trading largely unchanged at 108.920, near the two-year high it reached. Last week.
Trading ranges are likely to be limited on Thursday, as US traders take a holiday to honor former President Jimmy Carter, and a state funeral is scheduled for later in the session.
The dollar maintains strength
The Fed’s December meeting showed that policymakers are increasingly moving toward a slower pace of interest rate cuts in 2025 amid new concerns about inflation, while recent jobs data pointed to 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 increase unemployment.
This has led to the yield on the benchmark 10-year US Treasury bond reaching its highest level since April in recent days.
“The market is now pricing in a pause at the January 29 meeting and is not fully pricing in a 25 basis point cut until June,” analysts at ING said in a note. “We have five Fed speakers later today, but the next big influence on the outlook for the Fed’s easing cycle will be tomorrow’s December non-farm payrolls report, where some see upside risks.”
“Similarly, the dollar is likely to remain strong until Trump’s inauguration on January 20.”
German economic weakness affects the euro
In Europe, it fell 0.1% to 1.0306, remaining close to the two-year low hit last week amid recent signs of economic weakness, especially in Germany, the region’s largest economy.
They rose more than expected in November, according to data released earlier on Thursday, but the outlook for the euro zone’s largest economy remains weak.
Exports rose by 2.1% in November, while industrial production rose by 1.5% in November compared to the previous month.
“This recovery in industrial activity unfortunately comes too late to avoid another quarter of recession or even contraction,” said Carsten Brzeski, global head of macroeconomics at ING.
Interest rates are widely expected to ease by about 100 basis points in 2025, and this, combined with concerns about US tariffs, could see the single currency fall to parity with the US dollar this year.
It traded 0.5% lower at 1.2296, falling to its weakest level since April on concerns surrounding the UK bond market as British government bond yields hit multi-year highs.
“The heavy sell-off in gold…has weakened confidence in sterling, and the risk now is that sterling long positions are shrinking as investors reassess sterling’s exceptionalism,” ING added.
Yuan weakens after inflation data
In Asia, it rose 0.3% to 7.3542, with the Chinese currency remaining close to its weakest levels in 17 years after achieving slight growth in December, while it contracted for the twenty-seventh month in a row.
The reading showed a slight improvement in China’s long-term deflationary trend and indicated that Beijing will likely have to do more to support economic growth.
It fell 0.2% to 158.08, with the Japanese currency strengthening with a stronger-than-expected average cash earnings data for November.
This data reinforced the idea of a virtuous cycle in the Japanese economy – that rising wages will support inflation and give the Bank of Japan more momentum to raise interest rates sooner rather than later.
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