The U.S. dollar extended its gains for a third consecutive session on Thursday, driven by concerns over tariffs under the incoming Trump administration and persistent inflation fears.
- The dollar index rose 0.15%, reaching 109.18.
- The euro fell 0.2% to $1.0297.
U.S. Treasury yields dipped slightly but remained elevated, with the benchmark 10-year note yield hitting an 8½-month high of 4.73% on Wednesday.
Economic Resilience and Inflation Concerns
Recent economic data highlights a labor market showing solid performance, rekindling inflation concerns and fueling expectations for a slower pace of Federal Reserve interest rate cuts.
Minutes from the Fed’s December meeting reflected policymakers’ worries about inflation potentially increasing due to new administration policies, potentially impacting economic growth and unemployment.
Investors are focused on Friday’s key government payrolls report, which could provide insight into the Fed’s next moves.
“If we get a non-farm payrolls report stronger than expected, that’s another indicator that the economy is not cooling off and that inflation pressures will increase,” said Joseph Trevisani, senior analyst at FX Street.
Federal Reserve Officials Signal Caution
- Boston Fed President Susan Collins emphasized significant uncertainty in the economic outlook, urging a cautious approach to rate cuts.
- Philadelphia Fed President Patrick Harker indicated rate cuts are still expected but noted no imminent move is necessary amid the uncertainty.
Sterling Weakens as U.S. Dollar Rises
The British pound weakened 0.53% to $1.2296, marking its third straight session of declines.
- Sterling hit its lowest level since Nov. 13, 2023, amid heightened concerns over borrowing costs and the impact of potential Trump administration policies.
Japanese Yen Strengthens Amid Domestic Data
The Japanese yen gained 0.27%, trading at 157.93 per dollar.
- Japan’s inflation-adjusted real wages fell for the fourth consecutive month in November, impacted by higher prices despite base pay rising at the fastest pace in three decades.
- Analysts at Goldman Sachs suggest the Bank of Japan may consider a January rate hike following discussions at its branch managers meeting.
Market Closures and Tariff Concerns
The U.S. stock market remained closed on Thursday, with bond markets set for an early close in observance of former President Jimmy Carter’s funeral.