The dollar was supported Tuesday by political unrest in France that undermined the euro, while tariff risks and a weak Chinese economy pushed the yuan to its lowest level in a year.
The yen bucked the trend and neared its highest level in six weeks as investors became increasingly convinced that Japan is about to raise interest rates.
The euro, which was the G10's weakest currency in November, started the month with a 0.7% fall last night and hovered as high as $1.0489 early in the morning in Asia, as the French government is heading towards collapse due to a budget impasse. [EUR/GVD]
Improving U.S. manufacturing data and falling Chinese bond yields to record lows pulled the yuan below support around 7.26 per dollar to a four-month low and set the stage for another surge strength of the dollar. [CNY/]
“It’s a lot easier for USD/G10 to move higher when USD/CNH isn’t stuck in the mud,” said Brent Donnelly, a trader and president of analytics firm Spectra Markets.
China set the yuan's trading band at its lowest level in more than a year and the currency slipped to its lowest level since November 2023 at 7.2980 per dollar in early trade. [CNY/]
The Australian dollar fell 0.7% last night and was slightly lower at $0.6470, with mixed economic data showing a larger-than-expected current account deficit but an increase in government spending that is likely to stimulate growth. The New Zealand dollar fell 0.2% to $0.5874.
The yen, the only G10 currency to gain against the dollar last month, hit its highest level since late October on Monday at 149.09 per dollar and traded near that level Tuesday. Market prices imply a nearly 60% chance of a 25 basis point rate increase in Japan later in December.
Markets are awaiting US jobs data on Friday to sharpen bets on a possible Federal Reserve rate cut later in the month – currently rated as an even chance.
Figures on job openings are expected later on Tuesday.
Usually the dollar suffers seasonal weakness in December as businesses tend to buy foreign currencies, but this year traders have a wary eye on the new administration of President-elect Donald Trump and are holding the dollar firm.
Over the weekend, Mr. Trump threatened to impose punitive tariffs if BRICS member countries did not commit to using the dollar as a reserve currency.
“These remarks reinforce the idea that Trump will not seek to weaken the dollar during his presidential term and will instead rely on tariffs to address the significant US trade imbalance,” he said. said Jane Foley, strategist at Rabobank, in a note.
“We continue to believe that EUR/USD could fall to parity around the middle of next year. The timing could coincide with Trump introducing new tariffs.”
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