By Ankur Banerjee and Greta Rosen Fondahn
(Reuters) -The U.S. dollar drew strength from rising government bond yields on Thursday, adding to pressure on the pound and euro, while the yen rose from recent lows and the market waited for clarity on possible Trump tariffs.
The focus for markets in 2025 has been on newly-elected US President Donald Trump’s agenda when he returns to the White House on January 20, with analysts expecting his policies to both strengthen growth and increase price pressures.
CNN reported Wednesday that Trump is considering declaring a national economic emergency to provide legal justification for universal tariffs on allies and adversaries. On Monday, the Washington Post said Trump was looking at more nuanced tariffs, which he later denied.
Concerns that policies introduced by the Trump administration could reignite inflation have pushed bond yields higher, with the yield on the 10-year U.S. Treasury bond hitting 4.73% on Wednesday, the highest level since April 25 . On Thursday it was 4.6628%.[US/]
“Trump’s changing narrative on tariffs has undoubtedly had an effect on the USD. It appears markets will have to adapt to this volatility over the next four years,” said Kieran Williams, head of Asia FX at InTouch Capital Markets.
The bond market sell-off has boosted the dollar’s strength, which is overshadowing other currencies.
One of the hardest hit was the pound. It is one of the best performing currencies against the dollar in recent years, falling 1.9% in three days.
The British pound fell to $1.2239 on Thursday, its weakest level since November 2023, even as British government bond yields hit multi-year highs. The pound was last down around 0.64% at $1.2285.
Normally, higher government bond yields, meaning investors want higher returns for their risk, would support the pound.
BRITISH gloom
As confidence in the UK fiscal outlook deteriorates, the sell-off in UK government bond markets resumed early on Thursday before rebounding slightly to leave 10- and 30-year government bond yields broadly flat. [GBP/] [GB/]
“Such a simultaneous sell-off of currencies and bonds is quite unusual for a G10 country,” said Michael Pfister, currency analyst at Commerzbank (ETR:).
“It appears to be the culmination of a development that started several months ago. The new Labor government’s approval ratings are at record lows just a few months after the election, and sentiment among businesses and consumers is seriously depressed.”
The euro also fell, albeit less than the pound, to $1.0298, close to last week’s two-year low of $1.0224. Investors remain concerned that the common currency could fall to the psychological $1 mark this year due to rate uncertainties.
A significant number of currency forecasters expect the euro to reach parity with the dollar by 2025, a Reuters poll showed on Wednesday.
The yen strengthened 0.39% on the day and was last at 157.72 per dollar, although still hovering around the 160 per dollar mark that prompted Tokyo to intervene in the market last July.
On Wednesday, it hit a nearly six-month low of 158.55 per dollar.
Japan’s inflation-adjusted real wages fell for a fourth straight month in November, driven by higher prices, government data showed on Thursday.
All that sent the , which measures the U.S. currency against six other units, up 0.13% to 109.16, just shy of the two-year high it reached last week.
Also in the mix were the Federal Reserve’s December minutes, released Wednesday, which showed the central bank signaling new concerns about inflation and officials seeing increasing risk that the new administration’s plans could undermine economic growth slow down and increase unemployment.
With U.S. stock markets closed on Thursday and U.S. bond markets closing early, the spotlight will be on Friday’s payrolls report as investors sift through the data to gauge when the Fed will make the next rate cut.
