Ankur Banerjee
SINGAPORE (Reuters) – The U.S. dollar rallied on Thursday on rising government bond yields, putting the yen, sterling and euro under pressure near multi-month lows amid a volatile threat of tariffs.
Market focus in 2025 has been on the policies of US President-elect Donald Trump, who returns to the White House on January 20, and analysts expect his policies to boost growth and increase price pressures.
CNN reported Wednesday that Trump is considering declaring a national economic emergency to provide legal justification for a series of blanket tariffs on allies and adversaries alike. On Monday, the Washington Post said Trump was looking at more nuanced tariffs, which he later denied.
The growing threat of tariffs sent bond yields higher, with the yield on the benchmark 10-year US Treasury bond hitting 4.73% on Wednesday, the highest since April 25. In Asian hours, it was 4.6769%.
“Trump’s shifting narrative on tariffs has undoubtedly weighed on the USD. This capriciousness appears to be something markets will have to adjust to over the next four years,” said Kieran Williams, head of Asia FX at InTouch Capital Markets.
“While the tariff talks are likely to support the USD in the short term, they also introduce complexities with unknown implications.”
The sell-off in the bond market left the dollar upright and cast a shadow over the currency market.
The euro weakened to $1.03095, remaining close to a two-year low hit last week as investors remained concerned that the single currency could fall to the key $1 mark this year due to uncertainty over tariffs.
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.
“There is clearly reason to watch the UK bond market closely, and the recent trend is certainly worrying,” said Chris Weston, head of research at Pepperstone.
“However, we can receive some reassurance that the Bank of England is more prepared this time around and has reviewed the entry tools if we see a dysfunctional market arising from liquidity events in the gilt market.”
The fall in the pound and gold prices was much sharper in September 2022 during the turmoil that followed former prime minister Liz Truss’s “mini budget”.
That left the currency, which measures the U.S. currency against six other units, at 109.03, just shy of the two-year record it hit last week. The index gained 7% last year as traders adjusted expectations of a measured pace of interest rate cuts in the US.
The Federal Reserve jolted markets last month by forecasting two rate cuts for 2025, down from the four it had previously predicted, 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 signaled renewed concerns about inflation and that officials saw a growing risk that the incoming administration’s plans could slow economic growth and raise unemployment.
The yen was at 158.2 against the dollar, after touching a near six-month low of 158.55 on Wednesday, hovering near the key 160 mark that led to Tokyo’s intervention in the market last July.
The yen fell more than 10% against the dollar last year and is off to a shaky start in 2025, with traders wary of another intervention ahead of the Bank of Japan’s meeting later in the month.
Data released on Wednesday showed Japanese consumer sentiment worsened in December, casting doubt on the central bank’s view that solid household spending will support the economy and justify raising interest rates.
