The US dollar edged lower on Monday as US bond yields retreated, although it remained close to recent highs as the year nears its end.
By 04:05 ET (09:55 GMT), the Dollar Index, which measures the greenback against a basket of six other currencies, was down 0.1% at 107.690.
Despite this dip, the index was still on track for monthly gains exceeding 2%, bringing its year-to-date increase to nearly 7%.
Dollar poised for significant annual gains
The dollar has been supported by rising US Treasury yields, with the benchmark 10-year note reaching a more than seven-month peak last week. However, this yield eased to 4.599% on Monday.
The election of Donald Trump as president also boosted the dollar, as his pro-growth and inflationary policies, including deregulation, tax cuts, tariff hikes, and tighter immigration, are expected to prevent the Federal Reserve from quickly reducing interest rates next year.
At its final policy meeting of the year earlier this month, the US central bank projected only two 25 basis point rate cuts in 2025, and markets are currently anticipating approximately 35 basis points of easing for that year.
With holiday trading volumes expected to keep market ranges tight, attention this week will be on Thursday’s weekly jobless claims, Friday’s ISM manufacturing PMI data, and comments from FOMC member Thomas Barkin.
Euro gains following Spanish inflation data
In Europe, the EUR/USD pair gained 0.1% to 1.0439, recovering slightly after data showed Spain’s annual EU-harmonized inflation rate rose to 2.8% in December, up from 2.4% in November.
Earlier this month, the European Central Bank (ECB) lowered interest rates and indicated the possibility of further cuts as economic growth in the region stagnates.
However, ECB Governing Council member Robert Holzmann suggested on Saturday that the next rate cut might take longer due to a recent uptick in inflation.
Eurozone annual inflation rose to 2.2% in November, up from 2.0% in October, surpassing the ECB’s 2% target.
The GBP/USD pair rose 0.1% to 1.2595, with limited UK economic data to focus on ahead of Thursday’s manufacturing PMI release.
This data is expected to show that the UK’s manufacturing sector remained in contraction in December, following data revealing that Britain’s economy did not grow in the third quarter.
The Bank of England’s decision to keep interest rates on hold earlier this month, with a 6-3 vote, was more dovish than expected, signaling that rate cuts are likely next year.
Yen remains weak; intervention risks support
In Asia, the USD/JPY pair traded flat at 157.76, near five-month highs, with the risk of Japanese intervention preventing the pair from testing the 160 level last seen in July.
The Bank of Japan has indicated that it will take its time before considering further interest rate hikes after keeping rates steady at 0.25% at its recent meeting.
The USD/CNY rose 0.2% to 7.3136, staying close to a one-year high, as expectations of more fiscal spending and looser monetary conditions next year put downward pressure on the yuan.
