Dollar Nears One-Year High Amid Trump Administration Speculation and Treasury Market Reactions

The U.S. dollar rose on Tuesday, nearing its one-year high, as market attention focused on U.S. President-elect Donald Trump’s search for a Treasury Secretary. Reports indicate that the list of candidates has expanded, now including Apollo Global Management CEO Marc Rowan and former Federal Reserve Governor Kevin Warsh. Analysts highlight Warsh’s reputation for being less protectionist, a factor that may have contributed to Monday’s rally in Treasuries.

U.S. Treasury Yields and Economic Outlook

U.S. Treasury yields dipped slightly on Monday as investors considered the robust state of the U.S. economy and the expected policies of the incoming Trump administration. With concerns about a growing budget deficit, market sentiment could be influenced by whether the chosen Treasury Secretary favors policies that align more closely with Trump’s plans. A candidate perceived as supportive of deficit-expanding measures might prompt selling at the longer end of the Treasury yield curve and potentially exert downward pressure on the dollar.

Trump’s expected tax cuts could exacerbate the budget deficit, and investors remain attentive to how these fiscal policies will shape economic prospects.

Dollar Index Performance and Inflation Expectations

The dollar index, which measures the greenback against a basket of major currencies, rose 0.1% to 106.33, recovering some ground after a 0.4% decline in the previous session. Last week, it reached 107.07, its highest level since early November 2023. This month, the dollar has strengthened by over 2%, driven by lower expectations of significant Federal Reserve rate cuts and anticipation of Trump’s inflationary policies.

European and Japanese Currency Movements

The euro slipped 0.2% to $1.0578, continuing to hover near last week’s low of $1.0496, the weakest since early October 2023. Investors are awaiting key euro area data, including negotiated wage figures and regional purchasing manager surveys, ahead of the European Central Bank’s policy meeting in December. Market pricing reflects a full expectation of a 25-basis-point rate cut, with a smaller probability of a more aggressive 50 bps reduction still in play. ECB officials have expressed concern about the potential economic damage from anticipated U.S. trade tariffs, downplaying inflation risks.

The Japanese yen weakened further, falling 0.3% to 154.26 per dollar. The currency has depreciated by about 7% since October, even breaching 156 per dollar last week for the first time since July. The Bank of Japan Governor Kazuo Ueda did not provide any clues regarding a possible rate hike in December, and traders are on alert for potential intervention by Japanese authorities to support the yen.

Australian Dollar and Central Bank Stance

The Australian dollar held onto gains from the previous session, trading at $0.6515. The Reserve Bank of Australia has offered indirect support to the currency by reiterating that rate cuts are not imminent and may even need to increase rates under certain economic conditions.