US dollar set for biggest daily jump since October as yields rebound
THE greenback rose on the first trading day of the year, supported by higher US yields as attention turned to US jobs data and European inflation numbers this week, which may provide clues on central banks’ next moves.
The dollar index, which measures the US currency against six counterparts, was last up 0.67 per cent at 102.05, on track for its biggest daily percentage gain since October.
It fell 2 per cent in 2023, snapping two years of gains due to investor expectations that the US Federal Reserve will cut rates significantly this year while the economy remains resilient.
On the other side of the dollar’s ascent was the euro, which dipped 0.74 per cent as traders digested data showing that eurozone factory activity contracted in December for an 18th straight month and sterling, which was off 0.64 per cent at US$1.2657.
The dollar also climbed against the Japanese yen, rising 0.96 per cent to 142.16 yen.
Underpinning the dollar’s gains was a move higher in US yields. The benchmark 10-year yield was last up 10 basis points at 3.963 per cent. That would be its biggest daily increase in over three weeks, and comes after a 100 basis point drop in November and December.
Investors have a fairly busy week ahead with a slew of economic data including European inflation data and US data on job openings and non-farm payrolls, which will help shape market expectations regarding monetary policy moves from the Fed and European Central Bank.
“Primary corporate issuance (US$60 billion estimated in the US alone) could support this mean reversion in yields. Then Federal Open Market Committee (FOMC) minutes and payrolls will set the tone, and fine tune expectations for Jan and March FOMC meetings,” said Kenneth Broux senior strategist FX and rates at Societe Generale.
Minutes from the most recent meeting of the Fed’s rate setting FOMC in December are scheduled for release on Wednesday (Jan 3) and will provide further insight into the central bankers’ thinking.
Markets are now pricing in an 82 per cent chance of interest rate cuts from the Fed to start from March, according to CME FedWatch tool, with over 150 basis points of easing anticipated this year.
Traders were also processing higher oil prices, with Brent up over 2 per cent, on fears of potential disruption to Middle East supply after the latest attack on a container ship in the Red Sea.
That, however, could not help currencies of oil exporting hold off the stronger greenback. The US dollar climbed 0.4 per cent on the Norwegian crown and 0.2 per cent on the Canadian dollar while the Australian dollar dipped 0.33 per cent.
The euro did dip around 0.4 per cent on both the Aussie and the Loonie however.
The crypto world started the year with a bang, with bitcoin touching a 21-month peak of US$45,532 on rising expectations that the US Securities and Exchange Commission will soon approve exchange-traded spot bitcoin funds. REUTERS
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