Investing.com – The U.S. dollar steadied on Thursday, supported by rising government bond 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 mostly unchanged at 108,920, slightly off the two-year high it touched last week.
Trading ranges are likely to be tight on Thursday, with US traders on holiday to honor former President Jimmy Carter and a state funeral planned for later in the session.
Dollar retains strength
The Fed’s December meeting showed policymakers increasingly focused on a slower pace of rate cuts in 2025 amid renewed inflation concerns, 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.
That sent the yield on the benchmark 10-year US Treasury bond to its highest level since April in recent days.
“The market is now pricing in a pause in the January 29 meeting and not fully pricing in the 25bp cut until June,” ING analysts said in a note. “We have five Fed speakers later today, but the next big influence on Fed easing cycle expectations will be tomorrow’s December NFP report, which some see as potential risks.”
“Equally, the dollar is likely to remain strong until Trump’s inauguration on January 20.”
Germany’s economic weakness weighs on the euro
In Europe, it fell 0.1% to 1.0306, remaining close to a two-year low hit last week on recent signs of economic weakness, particularly in Germany, the region’s largest economy.
and rose more than expected in November, according to data released earlier Thursday, but the outlook for the eurozone’s biggest economy remains weak.
Exports in November increased by 2.1 percent, while industrial production in November increased by 1.5 percent compared to the previous month.
However, “this recovery in industrial activity unfortunately comes too late to avoid another quarter of stagnation or even contraction,” said Carsten Brzeski, global head of macro at ING.
It is widely expected to cut interest rates by around 100 basis points in 2025, and that, along with concerns over US tariffs, could see the single currency fall to parity with the US dollar this year.
traded 0.5% lower at 1.2296, falling to its weakest level since April on concerns about the UK bond market as UK government bond yields hit multi-year highs.
“The sell-off in gold has… undermined that confidence in sterling and there is now a risk that sterling debt will be reduced as investors reassess the exceptionality of sterling,” ING added.
Yuan weakens after inflation data
In Asia, it rose 0.3% to 7.3542, with China’s currency hovering near its weakest levels in 17 years after barely rising in December, falling for the 27th straight month.
The print showed a slight improvement in China’s long-term trend of disinflation and signaled that Beijing may need to do more to support economic growth.
fell 0.2% to 158.08, with the Japanese currency buoyed by stronger-than-expected average cash receipts data for November.
The data extended the idea of a virtuous cycle in the Japanese economy – that rising wages will support inflation and give the Bank of Japan more incentive to raise interest rates sooner rather than later.
