Dollar Weakens as Yen Surges on Rate Hike Expectations; Euro Gains Slightly
The U.S. dollar weakened against the Japanese yen on Thursday, slipping to a near one-month low as soft U.S. economic data and expectations of a potential Bank of Japan (BOJ) rate hike weighed on the greenback.
The yen strengthened following recent remarks from BOJ Governor Kazuo Ueda and Deputy Ryozo Himino, signaling that a rate hike will be a key topic at next week's policy meeting. Markets are pricing in a 79% likelihood of a 50 basis-point increase, adding momentum to the yen.
Japan's annual wholesale inflation remained steady at 3.8% in December, driven by persistently high food costs, further supporting the case for monetary tightening.
The dollar fell 0.81% against the yen to 155.2, its lowest level since December 19.
Kristina Hooper, Chief Global Market Strategist at Invesco U.S., commented on the currency movements, noting, "We anticipated nuanced U.S. dollar behavior—stronger against some currencies but weaker relative to the yen. A stronger yen against the dollar aligns with current trends."
Euro Edges Higher Amid Mixed U.S. Data
The euro rose slightly by 0.1% to $1.03 against the dollar as investors digested mixed U.S. economic indicators. Retail sales showed a modest 0.4% increase last month, while jobless claims rose more than expected, reflecting a resilient yet cautious labor market.
Meanwhile, the Philadelphia Fed Business Index unexpectedly jumped to 44.3 in January, far surpassing forecasts of -5, indicating robust regional manufacturing activity.
The U.S. Dollar Index, which measures the greenback against a basket of major currencies, slipped 0.05% to 108.97.
Treasury Yields and Inflation Outlook
U.S. Treasury yields dropped on Thursday as Federal Reserve Governor Christopher Waller reiterated the possibility of three to four interest rate cuts this year, contingent on further economic softening.
Investor sentiment also remained focused on the upcoming inauguration of Donald Trump. His administration's anticipated economic policies, including tax cuts and trade reforms, could boost growth but also reignite inflationary pressures.
In other currency moves, the British pound declined 0.13% to $1.2228, while the Chinese yuan traded near the weaker end of its band at 7.3316, reflecting ongoing concerns over tariff risks.
Key Currency Levels
- USD/JPY: Down 0.83% at 155.2
- EUR/USD: Up 0.1% at $1.03
- GBP/USD: Down 0.13% at $1.2228
- AUD/USD: Up 0.05% at $0.621
- NZD/USD: Up 0.02% at $0.5606
Traders now await further clarity from the BOJ meeting and additional signals from the Federal Reserve as markets navigate a complex global economic landscape.
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