Dollar edges higher; Trump's political appointments in focus

The U.S. dollar edged higher Tuesday after retreating further from last week’s one-year high during the previous session, as traders look for political guidance. 

At 05:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 106.427, after falling 0.4% in the previous session. 

The index climbed 1.6% over last week, marking six weeks of gains in the last seven, and reaching its highest level in a year. Treasury Secretary debate 

The foreign exchange markets are seeing some consolidation at the moment after a volatile few weeks, with the near 7% appreciation in the dollar index in just six weeks being one of the sharpest adjustments since the summer of 2022. 

“Positioning is probably the biggest threat to the dollar right now,” said analysts at ING, in a note, “although we may also start to hear of dollar seasonality again where DXY [dollar index] has fallen in eight of the last 10 Decembers and for the last seven consecutive Decembers.”

With the US data slate largely empty this week, the focus appears to be turning towards President-elect Donald Trump’s selections for his cabinet.

“One of the most relevant positions for financial markets is the post of US Treasury Secretary,” said ING. “A candidate with proven reliability will be well-received by the bond markets, while those with less experience – or perhaps a candidate that will offer less of a counterweight to some of President-elect Trump's plans – could see the long end of the US Treasury market sell-off and perhaps even soften the dollar too.” Euro hit by tariff fears

In Europe, EUR/USD traded 0.6% lower to 1.0535, not far removed from last week’s one-week low after European Central Bank officials expressed concerns over the damage that expected new U.S. trade tariffs would do to economic growth in the eurozone.

"The balance of macro-risks has shifted from concerns about high inflation to fears over economic growth," ECB Vice-President Luis de Guindos told an event in Frankfurt on Monday.

"The growth outlook is clouded by uncertainty about economic policies and the geopolitical landscape, both in the euro area and globally. Trade tensions could rise further, increasing the risk of tail events materialising."

The final eurozone CPI reading for October has confirmed that inflation is currently at the ECB’s 2.0% target, while quarterly growth for the region was just 0.4%.

GBP/USD fell 0.4% to 1.2626, ahead of the release of UK CPI data for October on Wednesday.

Economists expect the annual rate of inflation to have risen 2.2%, which would be an increase from 1.7% in September, the first time the annual rate of inflation dropped below the BoE’s 2% target in more than three years.

Also of note is the testimony from Bank of England Governor Andrew Bailey in front of lawmakers later Tuesday. He is sure to be asked about the likely impact on inflation of the new Labour government’s recently released budget.  Japanese inflation data due

USD/JPY fell 0.6% to 153.78, with the yen rebounding after hitting near four-month lows hit earlier in November.

Japanese consumer inflation data is due this Friday and is set to offer more insight into interest rates in the country. The reading also comes after largely underwhelming gross domestic product data for the third quarter, which sparked questions over just how much headroom the Bank of Japan has to raise interest rates further.

USD/CNY climbed 0.1% to 7.2434, remaining in sight of recent three-month highs. 

Focus this week is on an interest rate decision by the People’s Bank of China , although economists expect the central bank to leave its loan prime rate unchanged on Wednesday.

 

Source: Investing.com