By Laura Matthews
NEW YORK (Reuters) – The dollar continued to rise against the yen on Friday, but ended the week lower after a six-week winning streak as investors await Donald Trump’s presidential inauguration and clarity on the direction of Trump’s policy the new government.
The yen was poised for its strongest weekly performance in more than a month as expectations for a Bank of Japan rate hike next week increased, pushing the dollar into the background.
The rate rose more than 1% against the dollar this week, reversing last week’s decline, and hit a one-month high of 154.98 per dollar earlier on Friday.
The dollar last rose 0.68% against the yen at 156.165.
“The yen will remain quite closely linked to US yields,” said Brad Bechtel, Global Head of FX at Jefferies. “I think this cooling we’ve seen this week has helped take pressure off the dollar-yen. The BOJ looks set to rise next week, and on a margin that will be positive for the yen. But now that the interest rate differential still exists, very wide, it’s difficult for the dollar-yen to really move significantly lower.”
Comments from BOJ officials, along with Japanese data pointing to continued price pressures and strong wage growth, have boosted market confidence that a rate shift is on the horizon, with traders estimating an 80% chance of a rate hike next week.
Sources also told Reuters that the central bank is likely to raise interest rates next week, barring market shocks when Trump takes power.
The dollar has soared in recent weeks on rising Treasury yields, reflecting expectations that President-elect Trump’s policies could boost inflation while the U.S. economy is already strong.
But bond markets got relief from a brutal sell-off after softer U.S. core inflation data on Wednesday, plus comments from Federal Reserve Governor Christopher Waller on Thursday, who said three or four rate cuts were still possible this year if data supported it.
This prompted markets to increase their bets on Fed cuts this year, putting some pressure on the dollar ahead of Trump’s return to the White House next week.
Money markets are currently pricing in around 40 basis points of US interest rate cuts in 2025.
“In response to softer-than-expected inflation data last week, market participants have raised their expectations for rate cuts from 25 to 40 basis points,” said Uto Shinohara, senior investment strategist at Mesirow Currency Management.
“Notably, these market expectations have returned to levels seen just before last Friday’s robust employment report, indicating that the two economic releases have effectively canceled each other out.”
It’s a pattern that underlines the market’s continued sensitivity to both inflation and labor market data, he added.
And as the Federal Reserve enters its blackout period, with few major U.S. economic releases scheduled next week, Shinohara said “markets will be focused on the start of the Trump presidency and its potential market impacts.”
Investors are now waiting for Trump’s inauguration speech on Monday to get a better idea of his policy moves and to expect volatility.
Sterling fell 0.6% to $1.2166, not far from the 14-month low it hit on Monday.
British retail sales fell unexpectedly in December, data showed on Friday, raising the risk of an economic contraction in the fourth quarter.
The euro fell 0.26% to $1.0276.
This left the , which measures the US currency against six other units, 0.34% higher at 109.33, away from a more than two-year high reached at the start of the week.
The index was set to decline about 0.25% in the week from the afternoon session, which would represent a six-week stretch of gains.
last traded at 7.3249 per dollar after data showed the world’s second-largest economy grew 5.4% in the fourth quarter, significantly better than analysts’ expectations. The results positioned full-year 2024 growth at 5%, meeting Beijing’s target.
The Chinese currency remains vulnerable to potential tariff risks under Trump’s presidency. President Xi Jinping and Trump held a telephone conversation on Friday, state media Xinhua reported on Friday.
“The USD remains solely focused on potential rate announcements as Trump enters his first days back in power,” said Dan Tobon, head of G10 FX strategy at Citi.
“While rates are somewhat priced into the currency markets, the potential for increased moves in the USD – both higher and lower – remains next week. Market participants remain on edge as we await more concrete details on Trump’s tariff policy.”
which hit a four-week high on Friday, last rose 5.26% to $105,404.13, amid crypto industry hopes that the incoming Trump administration will mark a shift in cryptocurrency policy.
Currency
bid
prices at
17
January
08:13
pm GMT
Description RIC Last US Pct YTD Pct High Low
change bid at Close
Last
Session
Dollar 109.35 108.97 0.37% 0.79% 109.4 108.
index 82
Euro/pop 1.0274 1.0304 -0.26% -0.73% $1.0331 $1.0
am 266
Dollar/Year 156.18 155.21 0.61% -0.76% 156.32 155.
no. 035
Euro/yen 160.48 159.8 0.43% -1.68% 161.01 159.
74
Dollar/SW 0.9152 0.9111 0.42% 0.81% 0.9153 0.90
iss 96
Sterling/ 1.2165 1.2239 -0.59% -2.72% $1.2245 $1.2
Dollars 161
Dollar/Approx. 1.4466 1.4394 0.51% 0.61% 1.4467 1.43
nadian 83
Australia/Thurs 0.6194 0.6213 -0.28% 0.13% $0.6227 $0.6
llar 165
Euro/Swiss 0.9401 0.9378 0.25% 0.09% 0.9415 0.93
s 68
Euro/Star 0.8443 0.8415 0.33% 2.05% 0.8453 0.84
ling 15
New Zealand 0.5582 0.5608 -0.4% -0.19% $0.5615 0.55
Dollar/Do 64
llar
Dollar/no 11.4486 11.3559 0.82% 0.73% 11.4628 11.3
road 482
Euro/Norwegian 11.765 11.7036 0.52% -0.03% 11.7732 11.6
yes 95
Dollar/SW 11.1853 11.1464 0.35% 1.53% 11.2066 11.1
Eden 242
Euro/Sweden 11.4997 11.486 0.12% 0.29% 11.5088 11.4
en 795
