Ankur Banerjee
SINGAPORE (Reuters) – The dollar held near its highest level in more than two years on Tuesday as traders discounted a 2025 U.S. interest rate cut following strong economic data, while investor concerns over Britain’s fiscal health kept the weak pound in the spotlight .
With President-elect Donald Trump set to return to the White House next week, the focus has been on his policies, which analysts expect will boost growth but increase price pressures.
The threat of tariffs, along with the Federal Reserve’s stated measured approach to cutting interest rates this year, have lifted government bond yields and the dollar, putting the euro, pound, yen and yuan under pressure.
Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities, said the market’s focus now appears to be shifting towards the possibility of a gradual increase in US tariffs.
“The overnight fall in the USD on these headlines suggests that tariff fears have been allayed,” Newnaha said, referring to a Bloomberg report suggesting the Trump administration may take a gradual approach to tariffs.
“If these headlines continue until Trump’s inauguration, we are likely to see UST and USD yields decline with US stocks rising.”
The euro was steady at $1.02475 in early trade, but hovered near a more than two-year low of $1.0177 touched on Monday. The yen was at 157.54 against the dollar, easing slightly from the near six-month low it touched last week.
which measures the US currency against six other units, was 0.16% higher at 109.59, not far from a 26-month high of 110.17 touched on Monday.
After Friday’s jobs report reinforced support for the U.S. central bank’s cautious stance on further monetary easing this year, investors’ focus will be on Wednesday’s inflation report.
Traders forecast 29 basis points of easing this year, down from the 50 basis points the Fed projected in December, when it shook the market with its measured approach to cutting rates amid inflation concerns.
10-year US Treasury yields touched a 14-month high of 4.799% on Monday in choppy trading before retreating. It was at 4.7717% in early Asian hours. [US/]
ING’s strategists say the combination of a stronger dollar and higher government bond yields is crowding out financial flows to the rest of the world and starting to cause problems.
“Using the 2018-2019 tariff era as a template, we expect the dollar to remain strong throughout the year,” they said in a note, adding that the most important battleground in the foreign exchange market right now is the dollar/yuan – where the PBOC is still managing to hold the line even as depreciation pressures strengthen.
The People’s Bank of China (PBOC) unveiled a series of measures to prop up its weak currency, plans to park more dollars in Hong Kong to strengthen the yuan and improve capital flows by allowing companies to borrow more abroad.
It was last at 7.3465 per dollar in early trading.
The pound was in the crosshairs of global currency traders with UK markets hit by a sharp rise in bond yields. While higher yields often support the currency, in Britain analysts expect higher borrowing costs could force the government to rein in spending or raise taxes to meet its fiscal rules, potentially weighing on future growth.
The pound last touched $1.2211 in early trade after hitting $1.21 on Monday, its lowest since November 2023.
The Australian dollar was 0.13% higher on the day at $0.6184, after hitting its weakest since April 2020 on Monday. The New Zealand dollar was up 0.3% at $0.55995, hovering near a two-day low the year it reached in the previous session.
