SINGAPORE: The U.S. dollar charged ahead on Thursday underpinned by rising Treasury yields, putting the yen, sterling and euro under pressure near multi-month lows amid the shifting threat of tariffs.
The focus for markets in 2025 has been on U.S. President-elect Donald Trump’s policies as he steps back into the White House on Jan. 20, with analysts expecting his policies to both bolster growth and add to price pressures.
CNN on Wednesday reported that Trump is considering declaring a national economic emergency to provide legal justification for a series of universal tariffs on allies and adversaries.
On Monday, the Washington Post said Trump was looking at more nuanced tariffs, which he later denied.
The evolving threat of tariffs has led bond yields higher, with the yield on the benchmark 10-year U.S. Treasury note hitting 4.73% on Wednesday, its highest since April 25. It was at 4.6769% in Asian hours.
“Trump’s shifting narrative on tariffs has undoubtedly had an effect on USD.
It seems this capriciousness is something markets will have to adapt to over the coming four years,” said Kieran Williams, head of Asia FX at InTouch Capital Markets.
“While tariff talk is likely to support USD in the short term, they also introduce complexities with unknown implications.”
The bond market selloff has left the dollar standing tall and casting a shadow on the currency market.
The euro eased to $1.03095, remaining close to the two-year low it hit last week as investors remain worried the single currency may fall to the key $1 mark this year due to tariff uncertainties.
The pound was little changed at $1.2353 in early Asian trading, after hitting its weakest since April on Wednesday as British government bond yields hit multi-year highs.
“Clearly there is reason to watch the UK bond market intently, and the recent trend is certainly concerning,” said Chris Weston, head of research at Pepperstone.
“However, we can take some assurances that the Bank of England is more prepared this time around and has been reviewing the tools to step in should we see a dysfunctional market stemming from a liquidity event in the gilt market.”
Falls in both sterling and gilt prices were much sharper in September 2022 during the turmoil that followed former Prime Minister Liz Truss’ “mini-budget”.
That left the dollar index , which measures the U.S. currency against six other units, at 109.03, just shy of the two-year high it touched last week. The index gained 7% last year as traders adjusted expectations of a measured pace of U.S. rate cuts.
The Federal Reserve last month jolted markets by projecting two rate cuts for 2025, down from four it had previously predicted, due to concerns about inflation as well as Trump administration policies.
Dollar follows yields higher on strong US data
The minutes of the December meeting, released on Wednesday, showed the central bank flagged new inflation concerns and officials saw a rising risk the incoming administration’s plans may slow economic growth and raise unemployment.
The yen was at 158.2 per dollar, having touched a near six-month low of 158.55 on Wednesday, hovering near the key 160 mark that led to Tokyo intervening in the market last July.
The yen dropped more than 10% against the dollar last year and has made a stuttering start to 2025, with traders wary of another bout of intervention ahead of the Bank of Japan’s meeting later in the month.
Data on Wednesday showed Japan’s consumer sentiment deteriorated in December, casting doubt on the central bank’s view that solid household spending will underpin the economy and justify a rise in interest rates.
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