The US Dollar Charges Ahead
Rising Treasury Yields Underpin Strength
The US dollar charged ahead on Thursday, underpinned by rising Treasury yields, putting the yen, sterling, and euro under pressure near multi-month lows amid the shifting threat of tariffs.
Trump’s Agenda Spooks Markets
The focus for markets in 2025 has been on US President-elect Donald Trump’s agenda as he steps back into the White House on January 20, with analysts expecting his policies to both bolster growth and add to price pressures.
Tariffs on the Table
CNN on Wednesday reported that Trump is considering declaring a national economic emergency to provide legal justification for a series of universal tariffs on allies and adversaries. On Monday, the Washington Post said Trump was looking at more nuanced tariffs, which he later denied.
Inflation Concerns Send Bond Yields Soaring
Concerns that policies introduced by the Trump administration could reignite inflation has led bond yields higher, with the yield on the benchmark 10-year US Treasury note hitting 4.73 per cent on Wednesday, its highest since April 25. It was at 4.6709 per cent on Thursday.
Markets Must Adapt to Trump’s Capriciousness
"Trump’s shifting narrative on tariffs has undoubtedly had an effect on USD. It seems this capriciousness is something markets will have to adapt to over the coming four years," said Kieran Williams, head of Asia FX at InTouch Capital Markets.
The Dollar Index Rises
The bond market selloff has left the dollar standing tall and casting a shadow on the currency market.
Pound and Euro Hit Multi-Month Lows
Among the most affected was the pound, which was headed for its biggest three-day drop in nearly two years. Sterling slid to US$1.2239 on Thursday, its weakest since November 2023, even as British government bond yields hit multi-year highs.
Euro and Yen Under Pressure
The euro also eased, albeit less than the pound, to US$1.0302, lurking close to the two-year low it hit last week as investors remain worried the single currency may fall to the key US$1 mark this year due to tariff uncertainties. The yen hovered near the key 160 per dollar mark that led to Tokyo intervening in the market last July, after it touched a near six-month low of 158.55 on Wednesday.
Dollar Index Rises to Two-Year High
The dollar index, which measures the US currency against six other units, rose 0.15 per cent to 109.18, just shy of the two-year high it touched last week.
Fed Minutes Signal Inflation Concerns
Also in the mix were the Federal Reserve minutes of its December meeting, released on Wednesday, which showed the central bank flagged new inflation concerns and officials saw a rising risk the incoming administration’s plans may slow economic growth and raise unemployment.
Conclusion
The US dollar’s strength is likely to continue in the near term, driven by rising Treasury yields and concerns over tariffs. The pound and euro, on the other hand, are under pressure, with the pound hitting multi-month lows and the euro lingering near two-year lows.
FAQs
Q: What is driving the US dollar’s strength?
A: Rising Treasury yields and concerns over tariffs.
Q: What is the impact of Trump’s policies on the currency market?
A: Trump’s shifting narrative on tariffs has had an effect on the dollar, with markets needing to adapt to his capriciousness.
Q: What is the current state of the pound and euro?
A: The pound is headed for its biggest three-day drop in nearly two years, while the euro is lingering near two-year lows.
Q: What is the current state of the dollar index?
A: The dollar index rose 0.15 per cent to 109.18, just shy of the two-year high it touched last week.
