Dollar rebounds as bets on a rate cut in US decline

The dollar strengthened on Thursday, aligning with a reconsideration of expectations for the extent of the Federal Reserve’s interest rate reduction this year. This shift occurred amid market caution following a surge in risk appetite last month.

In Asia, the dollar reached its highest levels against the yen in two weeks, coinciding with the conclusion of the New Year holiday in Japan and the resumption of trading activities. The dollar against the yen rose to 143.90 before settling at 143.75 in the latest trading session, marking a gain of over 0.9 percent against the Japanese currency. This performance represented its best day since October.

The Australian dollar, often viewed as a gauge of risk appetite, struggled to distance itself from its two-week low recorded on Wednesday at $0.6703, reaching $0.6744 in the latest trading.

The New Zealand dollar, sensitive to risk, traded at $0.6266 after hitting a two-week low of $0.6221 in the previous session.

Minutes from the Fed’s December policy meeting, released on Wednesday, revealed officials’ confidence in controlling inflation. Concerns have shifted towards the risks of a “too aggressive” monetary policy on the economy. However, the Federal Reserve has not shown clear signs of initiating interest rate cuts, maintaining the need for monetary policy tightening for some time.

The dollar, measured against a basket of currencies, rose by 0.03 percent to 102.43, approaching its highest level in three weeks at 102.73 from the previous session.

The euro saw a 0.09 percent increase to $1.0931, while the pound remained near its three-week low at $1.2667.

Separate data released on Wednesday indicated ongoing contraction in the US manufacturing sector in December, albeit at a slower pace. Additionally, job opportunities in the US market decreased for the third consecutive month in November.

The US non-farm payrolls report, expected on Friday, may offer more clarity on the potential for the Federal Reserve to cut interest rates.

On the geopolitical front, both Hezbollah in Lebanon and the Israeli army expressed a desire to avoid expanding the scope of the conflict beyond the Gaza Strip. This followed a drone strike in Beirut that killed the deputy head of the political bureau of the Palestinian Islamic Resistance Movement (Hamas).