Investing.com – The U.S. dollar held steady Thursday, buoyed by rising Treasury 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 largely unchanged at 108.920, just below the two-year high it reached last week.
Trading margins are likely to be tight on Thursday as US traders are on holiday to honor former President Jimmy Carter, with a state funeral later in the session.
The dollar retains its strength
The Fed’s December meeting showed policy makers are increasingly focused on a slower pace of rate cuts through 2025, amid new inflation concerns, while recent jobs data have pointed to the underlying strength of the labor market.
In addition, Fed officials saw a growing risk that the new Trump administration’s plans would slow economic growth and increase unemployment.
As a result, the yield on the 10-year US government bond reached the highest level since April in recent days.
“The market is now pricing a pause at the January 29 meeting and won’t price a full 25bp cut until June,” ING analysts said in a note. “We have five Fed speakers later today, but the next big impact on Fed easing cycle expectations will be tomorrow’s December NFP report, where some see upside risks.”
“Similarly, the dollar is likely to remain strong through Trump’s inauguration on January 20.”
German economic weakness is weighing on the euro
In Europe, yields fell 0.1% to 1.0306, remaining close to a two-year low reached last week after recent signs of economic weakness, especially 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 euro zone’s largest economy remains weak.
Exports rose 2.1% in November, while industrial production rose 1.5% in November compared to the previous month.
But “this recovery in industrial activity unfortunately comes too late to prevent another quarter of stagnation or even contraction,” said Carsten Brzeski, Global Head of Macro at ING.
Rates are widely expected to be cut by around 100 basis points in 2025, and this, despite US rate concerns, could see the single currency return to parity with the US this year dollars.
traded 0.5% lower at 1.2296, falling to the weakest level since April on concerns around the UK bond market as UK government bond yields hit multi-year highs.
“The sell-off in government bonds has eroded confidence in sterling and there is now a risk that long positions in sterling will disappear as investors reassess the exceptional nature of sterling,” ING added.
The yuan weakens after inflation data
In Asia, the currency rose 0.3% to 7.3542, with the Chinese currency remaining near its weakest level in 17 years after barely growing in December, while shrinking for the 27th straight month.
The print showed little improvement in China’s long-standing disinflationary trend, and indicated that Beijing will likely have to do more to support economic growth.
fell 0.2% to 158.08, with the Japanese currency boosted by stronger-than-expected average cash earnings data for November.
The data promoted the idea of a virtuous cycle in the Japanese economy: that rising wages will support inflation and give the Bank of Japan more impetus to raise rates sooner rather than later.
