The dollar looked to extend its uptrend on Monday as high Treasury yields and more subdued prospects of U.S. rate cuts boosted its appeal, although intervention risk led to a pullback against the yen.
Yen bears were on edge in case Bank of Japan Governor Kazuo Ueda used a speech later Monday to signal a possible rate hike in December, partly because of the currency’s weakness.
Ueda will deliver a speech at 0100 GMT, followed by a press conference at 0445-0515 GMT. This will be his first opportunity to speak directly on monetary policy since Donald Trump’s victory in the US presidential election on November 5.
Markets are implying about a 55% chance of a quarter-point rate hike to 0.5% at the BOJ meeting on Dec. 19.
Japanese Finance Minister Katsunobu Kato warned the market on Friday of possible intervention if the yen fell too quickly, sending the dollar down 1.3% to 154.30 yen. Support now stands at 153.86 and resistance at last week’s high of 156.76.
This pullback has allowed the euro to stabilize for the moment at $1.0530, although that level is still uncomfortably close to the recent one-year low of $1.0496.
Against a basket of currencies, the dollar held steady at 106.730, after hitting a high of 107.07 on Friday. The index rose 1.6% during the week, marking six weeks of gains out of the last seven.
The rise coincided with a sharp rise in 10-year Treasury yields, which have climbed 70 basis points since the start of October, fueling a 5.4% rise in the U.S. dollar index. .
THE PRIZE OF AMERICAN EXCEPTIONALISM
“While a period of consolidation seems likely in the near term, we have revised our forecasts for the dollar upwards and now expect a further appreciation of 5% by the end of 2025,” said Jonas Goltermann, an economist Deputy Chief Markets Officer at Capital Economics.
“These forecasts are based primarily on the idea that Mr. Trump will continue to implement the tariff policies he proposed during his election campaign and that the U.S. economy will continue to outperform its main competitors.”
Markets are eager to see who Trump will choose as Treasury secretary, with Cantor Fitzgerald CEO Howard Lutnick and investor Scott Bessent being the leading contenders for the position.
Analysts generally believe that Trump’s policies of imposing tariffs, reducing immigration and financing tax cuts with debt will be inflationary, limiting the Federal Reserve’s room for maneuver. for further rate cuts.
Futures imply a 60% chance the Fed will ease rates by a quarter point in December and forecast just 77 basis points of reduction by the end of 2025, down from more than 100 a few weeks ago .
At least seven Fed officials are scheduled to speak this week and traders assume they will be cautious about aggressive cuts.
A horde of European central bankers will also speak this week and could be more pessimistic given recent unencouraging economic data and the risk of tariffs hitting EU trade.
The data calendar for the United States is light this week, but the United Kingdom, Japan and Canada all have important inflation reports, while manufacturing surveys, released late in week, will give a clue about the state of mind after the American elections.
