The dollar advanced towards its highest level in over two years on Tuesday, supported by strong U.S. economic data that led investors to scale back expectations for Federal Reserve rate cuts.
Tariff uncertainties and expectations for growth-boosting policies under President-elect Donald Trump also bolstered the greenback.
Following Friday’s strong jobs report, attention shifts to U.S. inflation data, with producer prices (PPI) due Tuesday and consumer prices (CPI) on Wednesday. Traders are now pricing in 28 basis points of Fed rate cuts for 2025, compared to 50 basis points projected in December.
U.S. Treasury 10-year yields hit a 14-month high of 4.805% on Monday before easing to 4.776% on Tuesday. Analysts note that higher Treasury yields, combined with tariff concerns, continue to support the dollar.
The dollar index rose 0.20% to 109.58, close to its 26-month high of 110.17 reached Monday. The euro was up 0.12% at $1.0257 after hitting a November 2022 low of $1.0177 on Monday. The euro fell more than 6% in 2024 due to monetary policy divergence and tariff risks.
The British pound faced a sixth straight session of losses against the dollar, hitting a fresh 2-1/2-month low versus the euro as fiscal challenges weighed. The yen dropped 0.3% to 157.93 per dollar ahead of next week’s Bank of Japan meeting, where markets see a 57% chance of a rate hike.
The dollar/yuan market remains critical, with the People’s Bank of China (PBOC) unveiling measures to stabilize the yuan amid rising depreciation pressures. Analysts view the PBOC’s recent interventions as key to managing forex market dynamics.
