SINGAPORE- The dollar hovered near its highest level in more than two years on Tuesday as traders scale back wagers on US rate cuts in 2025 after strong economic data, while investor worries 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 that 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 have lifted Treasury yields and the dollar, putting the euro, pound, yen and yuan under pressure.
Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities, said the market’s focus now appears to be shifting towards the possibility that US tariffs may be raised gradually.
“The decline in the USD overnight to these headlines suggests that tariff fears have been baked in,” said Newnaha, referring to a Bloomberg report that suggested the Trump administration could take a gradual approach to tariffs.
“And should these headlines persist into Trump’s inauguration, it’s likely to be see UST (Treasury) yields and the USD head lower with US equities turning higher.”
The euro was steady at $1.02545 but hovered near the more than two-year low of $1.0177 it touched on Monday. The single currency has struggled at the start of the year after dropping more than 6 percent in 2024 as investors fret about the weak economic growth in the region and tariff threats.
The dollar index which measures the US currency versus six other units, was 0.16 percent higher at 109.59, not far from the 26-month high of 110.17 it touched on Monday.
After a blowout jobs report on Friday reinforced support for the US central bank’s cautious stance toward further monetary policy easing this year, investors’ focus is now on the US consumer inflation report due on Wednesday.
Traders are pricing in 29 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.