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The U.S. dollar advanced for the second consecutive day on Wednesday, buoyed by strong economic data that pushed bond yields higher and diminished expectations for Federal Reserve rate cuts in 2025.
U.S. job openings rose unexpectedly in November, while December’s services sector activity showed notable acceleration. Additionally, a surge in input prices to a two-year high raised fresh concerns about inflationary pressures. This drove the 10-year U.S. Treasury yield to an eight-month high of 4.699%, up over eight basis points.
Market participants now anticipate only 38 basis points of rate cuts from the Federal Reserve this year, with the first potential cut pushed back to July. Attention is now turning to private payroll data later today and critical labor market reports due on Friday, which could further clarify the Fed’s monetary policy trajectory.
The dollar index climbed 0.15% to 108.86, inching closer to its two-year peak of 109.58 reached last week.
Major Currencies Under Pressure
Other global currencies remained under pressure, with several trading near multi-month or multi-year lows:
- Japanese Yen: The yen weakened to 158.13 per dollar, nearing levels that previously prompted intervention. Concerns over softening consumer sentiment in Japan and questions about the Bank of Japan’s interest rate policy weighed heavily on the currency.
- Euro: The euro declined 0.16% to $1.0323, reflecting uncertainty despite higher inflation in the eurozone in December. Markets continue to price in 100 basis points of easing from the European Central Bank this year.
- British Pound: Sterling dropped 0.24% to $1.2458, extending its losses as traders awaited clarity on U.S. labor data and upcoming policy developments.
- Chinese Yuan: The yuan hit a six-month low of 7.3319 against the dollar, reflecting weaker sentiment on the Chinese economy.
- Antipodean Currencies: The Australian dollar hovered at $0.6221, while the New Zealand dollar (“kiwi”) settled at $0.5621. Both currencies remain close to multi-year lows, weighed down by weak economic data in their respective regions.
Outlook
Traders remain cautious ahead of U.S. President-elect Donald Trump’s inauguration on January 20, as his administration is expected to introduce significant policy measures. The dollar’s rally could further extend if upcoming labor market data and policy announcements reinforce the resilience of the U.S. economy.
Meanwhile, other currencies may remain subdued as their respective economies grapple with weak sentiment and policy uncertainties. The global monetary policy landscape will likely dominate market movements in the near term.
