The dollar remained strong on Tuesday, bolstered by political instability in France that weakened the euro, while concerns over tariffs and a sluggish Chinese economy pushed the yuan to its lowest level in 13 months.
The yen, which recently saw a resurgence, eased slightly but stayed close to six-week highs against the dollar as traders increasingly anticipate a potential rate hike by Japan later in December.
The euro, November’s weakest G10 currency, started December with a 0.7% drop on Monday, trading at $1.0487 during the Asian session. The decline was driven by fears of a governmental collapse in France over a budget standoff. [EUR/GVD]
Meanwhile, robust U.S. manufacturing data and a plunge in Chinese bond yields to record lows pressured the yuan. Breaking below key chart levels, the yuan approached 7.3 per dollar, signaling renewed dollar strength. [CNY/]
“USD/G10 finds it much easier to rise when USD/CNH isn’t stuck in a range,” noted Brent Donnelly, trader and president of Spectra Markets.
China set the yuan’s trading band at its weakest level in over a year, prompting traders to sell it down to 7.2996 per dollar from Friday’s 7.24. [CNY/]
The Australian dollar fell 0.7% on Monday and dipped further to $0.6472. Mixed economic data showed a larger-than-expected current account deficit, partially offset by increased government spending likely to support growth. The New Zealand dollar also edged 0.2% lower to $0.5876.
The yen, the only G10 currency to gain against the dollar in November, hit a late October high of 149.09 on Monday before settling at 150.15.Market pricing suggests a nearly 60% likelihood of a 25-basis-point rate hike in Japan later this December.
Attention is also on U.S. employment data due Friday, which will help refine expectations on whether the Federal Reserve might cut rates later this month—currently seen as a 50-50 chance. Additionally, job openings data set to release later Tuesday could provide further insights.
Typically, the dollar experiences seasonal weakness in December as companies buy foreign currencies. However, this year, traders remain cautious about the impact of President-elect Donald Trump’s incoming administration, keeping the dollar steady.
Over the weekend, Trump warned of punitive tariffs unless BRICS nations agreed to commit to the dollar as a reserve currency.
“These remarks reinforce the view that Trump is unlikely to seek a weaker USD during his presidency and will instead focus on tariffs to address the U.S.’s significant goods trade deficit,” Rabobank strategist Jane Foley noted in a report.
Foley added, “We continue to anticipate EUR/USD could fall to parity by mid-next year, potentially aligning with the introduction of new tariffs under Trump.”
