Dollar near 2-year high after rate-cut bets fade, tariffs in focus
The dollar hovered near its highest level in more than two years on Tuesday as traders scaled back bets on U.S. rate cuts in 2025 after strong economic data, while investor concerns about Britain's fiscal health kept frail sterling in the spotlight.
With President-elect Donald Trump set to step back into the White House next week, the focus has been on his policies which analysts expect will boost growth but add to price pressures.
The threat of tariffs along with the Federal Reserve's stated measured approach to rate cuts this year has lifted Treasury yields and the dollar, putting the euro, pound, yen and yuan under pressure.
However, on Tuesday the market focus returned to the chance that U.S. tariffs may be raised gradually, after a media report suggesting the U.S. could take a measured approach.
The euro was up 0.2% at $1.0263. It touched $1.0177 on Monday, its lowest level since Nov. 2022. The single currency dropped more than 6% in 2024 as investors fretted about tariff threats and the monetary policy divergence between the Fed and the European Central Bank.
The dollar index, which measures the U.S. currency versus six other units, was 0.05% higher at 109.44, not far from the 26-month high of 110.17 it reached on Monday.
After a blowout jobs report on Friday reinforced support for the U.S. central bank's cautious stance toward further monetary policy easing this year, investors will closely watch U.S. inflation readings, with producer prices released later on Tuesday and consumer prices on Wednesday.
Traders are pricing in 30 basis points of easing this year, less than the 50 basis points the Fed projected in December, when it jolted the market with its measured approach to rate cuts due to inflation worries.
U.S. Treasury 10-year yields touched a 14-month high of 4.805%, on Monday in choppy trading before pulling back. It was steady at 4.755% on Tuesday.
ING strategists said the combination of a stronger dollar and higher Treasury yields is crowding out financial flows to the rest of the world and is starting to cause problems.
The pound has been in the crosshairs of currency traders, driven by investor concerns about Britain's fiscal sustainability.
It last fetched $1.2211 in early trading, after hitting $1.21 on Monday, its lowest since November 2023.
The yen was flat at 157.49 per dollar, inching away from the near six-month low it touched last week, with traders bracing for next week's Bank of Japan policy meeting where markets are pricing in 57% chance of a hike.
Source: Reuters
