By Tom Westbrook and Greta Rosen Fondahn
SINGAPORE/GDANSK (Reuters) -The dollar rose for a second day on Wednesday, while other major currencies languished near multi-month lows after strong U.S. data sparked a spike in bond yields and some bets on Federal Reserve rate cuts reduced.
Data on Tuesday showed US job openings unexpectedly rose in November and layoffs were low, while a separate survey showed activity in the US services sector accelerated in December and a measure of input prices topped out reached in two years – a possible inflation warning.
Bond markets responded by pushing 10-year yields higher by more than eight basis points to an eight-month high of 4.699%.
“We’re getting very strong data from the US… causing interest rates to rise,” said Bart Wakabayashi, Tokyo branch manager at State Street (NYSE:), extending expectations of Fed rate cuts into northern summer or beyond.
“There’s even a discussion going on about: will they cut back or even increase? The story has changed quite a bit.”
Markets are now pricing in just 38 basis points of Fed easing this year, with the first cut in July.
US private payroll data to be released later in the session will be watched for further clues on the likely path of US interest rates.
Traders are nervous ahead of key US labor data on Friday and Donald Trump’s inauguration on January 20, with his second US presidency expected to kick off with a flurry of policy announcements and executive orders.
The dollar fell on Monday after a report in the Washington Post that Trump’s aides were exploring plans to apply trade tariffs only on sectors considered critical to US national security.
However, the coin made up some ground after Trump denied the report in a post on his Truth Social platform.
On Wednesday, yields rose 0.15% to 108.86, chasing last week’s two-year peak of 109.58.
Other currencies struggled.
The yen fell close to the level of 160 per dollar that required intervention last year, reaching 158.42 overnight, its weakest level against the dollar in almost six months. The last one was at 158,130.
Japanese consumer confidence deteriorated in December, a government survey shows. This casts doubt on the central bank’s view that solid household spending will support the economy and justify a rise in interest rates.
Inflation rose in the euro zone in December, data showed on Tuesday, but markets are still pricing in a 100 basis point easing by the European Central Bank this year.
The euro fell 0.16% on the day to trade at around $1.0323, after reaching $1.0224 last week, its lowest level in two years.
“The lack of strong leadership in Europe, especially at a time when Europe is facing Trump tariffs and uncertainties over NATO, suggests that the Euro bulls will be quite reluctant to step forward,” said Jane Foley, senior forex strategist at Rabobank.
Sterling fell 0.24% to $1.2458, while hitting a six-month low of 7.3319 against the dollar.
The contrast between the solid US economy and weak data in Australia and New Zealand has also caused the Antipodes’ currency to fall to its lowest level in several years.
On Wednesday, the dollar hit a low of $0.5621, not far from a two-year low of $0.5588, while the Australian dollar languished at $0.6221, not far from breaking the 2022 low of $0.6170.
