By Laura Matthews
(Reuters) -The dollar weakened against the euro on Tuesday but remained near its highest level in more than two years as cooler-than-expected inflation data following last week’s strong jobs report made it difficult to predict the next steps of the Federal Reserve to predict interest rates.
Data shows that US producer prices rose moderately in December. Investors had already started to scale back their bets on rate cuts as potential US tariffs remained in the spotlight.
The dollar pared gains later in the session as traders cautiously awaited Wednesday’s consumer price index report. Investors have been closely watching economic data to see if they support the Fed’s cautious interest rate policy.
“It’s possible that traders are now hedging the other side of the market ahead of the CPI tomorrow, so we see some volatility ahead of the release that keeps the dollar a bit depressed,” said Helen Given, associate director of trading at Monex USA in Washington. . “Rate stories are, it seems, the main driver of price action today.”
Traders are pricing in the first rate cut in September, but less than the 50 basis points the Fed forecast in December.
As President-elect Donald Trump begins his second term next week, the focus is on his policies that analysts expect will boost growth and price pressure.
The threat of tariffs, along with less priced-in rate cuts from the Fed, has pushed Treasury yields higher and supported the dollar.
However, on Tuesday the market refocused on the likelihood that US tariffs would be gradually raised after a Bloomberg report suggested the US could take a measured approach.
Trump’s pick for US Treasury Department Scott Bessent is expected to keep US deficits in check and use tariffs as a negotiating tool, mitigating the expected inflationary impact of US economic policy.
Brad Bechtel, global head of FX at Jefferies, said that while the CPI report is important, “all eyes are on Trump and the new administration.”
Still, Matt Weller, head of market research at StoneX, said Wednesday’s CPI reading “will ultimately be more important to the central bank and therefore to traders, who will be looking for a corresponding cool reading as a green light to buy up risky assets.” .”
The , which measures the dollar against six other currencies, fell 0.14% to 109.25, lower than the 26-month high of 110.17 it reached on Monday. It reached 114.78 in October 2022, the highest level since 2002.
The euro rose 0.51% to $1.0297. On Monday, the price reached $1.0177, the lowest level since November 2022.
The single currency fell more than 6% in 2024 as investors worried about rate threats and monetary policy differences between the Fed and the European Central Bank.
The British pound fell 0.04% to $1.2198 against the dollar and also hit a two-and-a-half month low against the euro as concerns over Britain’s budget woes continued to weigh.
The dollar rose 0.26% against the yen to 157.89, with traders bracing for next week’s Bank of Japan policy meeting when markets are pricing in a 57% chance of a rise.
Some analysts pointed out that the main battleground in the forex market right now is the dollar/yuan – as the People’s Bank of China (PBOC) manages to hold the line even as depreciation pressures mount.
The PBOC has unveiled a series of measures in recent days to support the weak currency.
The yuan was flat and changed hands to 7.3454 per dollar on Tuesday.
Currency
bid
prices at
14
January
08:14
pm GMT
Description RIC Last US Pct YTD Pct High Low
at Close Change bid
Last
Session
Dollar 109.27 109.42 -0.13% 0.72% 109.76 109.
index 2
Euro/pop 1.0297 1.0245 0.51% -0.54% $1.0306 $1.0
ar 239
Dollar/Year 157.91 157.61 0.18% 0.34% 158.15 157.
12
Euro/yen 162.61 161.32 0.8% -0.37% 162.8 161.
2
Dollar/SW 0.9126 0.917 -0.47% 0.56% 0.9173 0.91
is 24
Sterling/ 1.2195 1.2203 -0.06% -2.49% $1.2251 $1.2
$14
Dollar/Approx. 1.4365 1.438 -0.1% -0.1% 1.441 1.43
nadian 44
Australia/Thurs 0.6184 0.6176 0.15% -0.03% $0.6207 $0.6
lar 167
Euro/Swiss 0.9396 0.9392 0.04% 0.03% 0.9416 0.93
s 78
Euro/Star 0.844 0.839 0.6% 2.02% 0.845 0.83
ling 86
New Zealand 0.5596 0.5583 0.25% 0.03% $0.5631 0.55
Dollar/Do 8
llar
Dollar/no 11.3907 11.4276 -0.32% 0.22% 11.4415 11.3
road 74
Euro/Norwegian 11.7303 11.7006 0.25% -0.33% 11.74 11.6
yes 781
Dollar/SW 11.1817 11.2445 -0.56% 1.49% 11.2513 11.1
Eden 707
Euro/Sweden 11.5136 11.523 -0.08% 0.42% 11.5285 11.5
en 001
