Dollar edges lower as yields slips; hefty annual gain likely

The US dollar slipped slightly Monday, as US bond yields retreated, but remained near recent highs as the end of the year draws near.

At 04:5 ET (09:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 107.690.

However, the index was still on course for monthly gains of over 2%, bringing year-to-date gains to almost 7%. Dollar on course for hefty annual gains

The dollar has been helped by rising US Treasury yields, with the benchmark 10-year note hitting a more than seven-month high last week. This yield, however, slipped by to 4.599% on Monday.

The election of Donald Trump as the new president also gave the dollar a boost as his policies of looser regulation, tax cuts, tariff hikes and tighter immigration are seen as both pro-growth and inflationary, and are likely to keep the Federal Reserve from cutting interest rates rapidly next year.

The US central bank projected just two 25 bp rate cuts in 2025 at its last policy meeting of the year earlier this month, and markets are now pricing in just about 35 basis points of easing for 2025. 

Trading ranges are likely to be tight this holiday-impacted week, and the focus will be on weekly jobless numbers on Thursday and ISM manufacturing PMI data a day later, as well as comments from FOMC member Thomas Barkin . Euro gains after Spanish inflation

In Europe, EUR/USD rose 0.1% to 1.0439, bouncing slightly after data showed that Spain’s annual EU-harmonized inflation rate rose to 2.8% in December, up from the 2.4% figure recorded in November.

The European Central Bank cut interest rates earlier this month and signaled more cuts ahead as economic growth in the region stagnates.

However, the next interest rate cut could be longer in coming after a recent uptick in inflation, ECB Governing Council member Robert Holzmann was quoted as saying on Saturday.

Eurozone annual inflation accelerated in November to 2.2% from 2.0% a month earlier and above the ECB's 2% target rate.

GBP/USD traded 0.1% higher to 1.2595, with little in the way of UK economic data to study ahead of Thursday’s manufacturing PMI release.

That is expected to show that the country’s manufacturing sector remained firmly in contraction in December, after data showed that Britain's economy failed to grow in the third quarter.

Bank of England policymakers voting 6-3 to keep interest rates on hold at the meeting earlier this month, a more dovish split than expected, suggesting rate cuts will continue next year. Yen remains weak; risk of intervention supports

In Asia, USD/JPY traded largely flat at 157.76, around five-month highs for the pair, with only the risk of Japanese intervention preventing another test of the 160 level last seen in July.

The Bank of Japan signaled that it will take its time to consider more interest rate hikes after the central bank held interest rates steady at 0.25% at this month's meeting.

USD/CNY rose 0.2% to 7.3136, remaining close to a one-year high as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency. 

 

Source: Investing.com