Investing.com – The U.S. dollar fell on Monday, on the defensive at the start of a new week that sees Donald Trump return to the White House, with volumes hit by the U.S. holidays.
At 04:10 ET (09:10 GMT), the , which tracks the greenback against a basket of six other currencies, traded 0.3% lower at 108.925, but still not far from the high of more than two years seen last week.
The dollar is losing momentum
The dollar began the new week lower, having gained around 4% since November’s US presidential election, with traders anticipating that Trump’s policies will be inflationary, requiring higher interest rates for a longer period.
Volumes are expected to be low Monday because U.S. markets are closed for the Martin Luther King Jr. holiday and because traders await Mr. Trump’s inauguration speech later in the day.
Investors are closely following Mr. Trump’s preparations for his second term, with the new president indicating he plans to sign a slew of executive orders on his first day.
“Financial markets are on alert to see what executive orders newly elected US President Donald Trump will issue on his first day,” analysts at ING (AS:) said in a note.
“Forex markets are most interested in what he has to say about tariffs and what kind of pain the Oval Office plans to inflict on major trading partners.”
ING added: “After four months of rumor-based buying, the dollar is now exposed to fact-based selling – but there should be plenty of dollar buyers.”
Euro rebounds after hitting two-year low
In Europe, rose 0.3% to 1.0313, but remained near a two-year low hit last week amid concerns about a trade war, after the Bank’s Isabel Schnabel European powerhouse, said last weekend that a trade conflict was “very likely”.
“The euro should perhaps be concerned that online prediction markets are only predicting low tariffs for the EU this week,” ING added. “Similarly, we doubt that foreign exchange markets are fully prepared for universal tariffs and EUR/USD would be affected if such tariffs appear.”
-Prices rose less than expected in December, according to data released earlier Monday, rising 0.8% on the year, lower than the 1.1% increase expected.
The European Central Bank has cut interest rates four times since June and is expected to continue doing so over the next six months, after seeing euro zone inflation rise from double digits at the end of 2022 at a rate just above its objective of 2%.
The British pound traded 0.1% higher at 1.2193, with the pound losing almost 3% over the past month after recent weak economic data pointed to further interest rate cuts over the coming year.
The Bank has cut interest rates twice in 2024, and is widely expected to cut rates in February, at its next policy-setting meeting.
The yen awaits the BoJ meeting
In Asia, fell 0.1% to 156.19 as markets anticipated an interest rate hike at the Bank of Japan meeting scheduled for later in the week.
The is expected to raise interest rates, provided there are no market disruptions following Trump’s inauguration.
The Chinese currency traded 0.2% lower at 7.3143, after the People’s Bank of China decided to keep its site stable, with the prime rate for one-year loans remaining unchanged at 3.1% and the five-year rate, used to set mortgage rates, at 3.60%.
The move, which aims to support the weakening yuan, maintain liquidity and support economic recovery, has done little to influence market sentiment towards the currency.
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