The US dollar strengthened on Wednesday, benefiting from rising bond yields following the release of robust economic data, while weaker German industrial orders put pressure on the euro.
At 04:35 ET (09:35 GMT), the Dollar Index, which tracks the greenback against six major currencies, was up 0.3%, reaching 108.690.
Dollar Gains as Treasury Yields Surge
The dollar continued its upward momentum on Wednesday, building on the positive momentum from the previous session, driven by data showing a surprise increase in US job openings in November, low layoffs, accelerated activity in the services sector in December, and a two-year high in prices paid for inputs.
This led to 10-year Treasury yields rising to their highest point in eight months, with the 30-year yield approaching the 5% mark.
“Yesterday’s US data releases were hawkish for the Fed, and the implied probability of a March rate cut has now dropped below 40%,” noted analysts at ING in a report.
“The standout data point was the ISM prices paid subcomponent, which surged to its highest level since January 2023. If the Fed had already factored in a resilient economy during their December meeting, concerns about rising inflation could lead to an even more hawkish stance in future policy messaging.”
The Federal Reserve reduced its forecast for rate cuts this year to two during its December meeting. However, traders are now pricing in only around 37 basis points of easing this year, according to LSEG data.
More data is due to be released on Wednesday, including the ADP private payrolls report and weekly jobless claims, ahead of Friday’s key US jobs report, which will provide further insight into the health of the world’s largest economy.German Economic Weakness Weighs on the Euro
In Europe, the euro dipped 0.2% to 1.0326 against the US dollar, adding to the previous day’s 0.5% decline following disappointing economic data from Germany, the region’s largest economy.
German industrial orders fell by 5.4% in November, driven by a decline in large orders, while retail sales dropped 0.6%, undermining hopes of a pre-Christmas boost from promotions like Black Friday and Cyber Monday.
Investors are now anticipating that the European Central Bank (ECB) will cut interest rates by around 100 basis points in the first half of 2025.
“There’s only a speech by French central bank governor Villeroy to watch on the eurozone calendar today. EUR/USD may find solid support around 1.0300 for now,” said ING.
Sterling Slips Amid Limited Economic Data
GBP/USD traded 0.2% lower to 1.2447, with little economic data due for release on Wednesday, except for a speech from Bank of England Deputy Governor Sam Woods.
The Bank of England kept interest rates unchanged last month and is expected to proceed cautiously with further rate cuts this year, given that inflation remains above the target.
Weak Sentiment Surrounding the Yuan
In Asia, USD/CNY rose 0.1% to 7.3511, with the Chinese yuan hitting its weakest level in 17 years earlier this week.
Sentiment around China remains weak, especially with President-elect Donald Trump’s inauguration approaching on January 20, as he has pledged to impose significant trade tariffs on China.
Yen Shows Modest Recovery
USD/JPY gained 0.1% to 158.19, recovering slightly from its lowest level in nearly six months.
The yen saw its recent losses slow after government officials issued a verbal warning about potential currency market intervention, leading traders to exercise more caution in shorting the Japanese currency.
