Authors: Tom Westbrook and Medha Singh
(Reuters) – The dollar rose from a two-week low against its main rivals on Thursday in weakened holiday trading, although the yen entered its strongest week in almost three months on rising expectations that Japan will raise interest rates in December.
The yen fell half a percent to 151.93 per dollar, but thanks to a 1.9% gain this week, the currency made up for losses since the US election. Markets see about a 65% chance that the Bank of Japan will raise interest rates next month.
It was slightly higher at 106.30 after suffering its sharpest decline in four months, which pushed it to 105.85 in the previous session.
Widespread trade was facilitated due to the Thanksgiving holiday in the US.
“The end of the week is likely to be quiet for a few days, but I expect the dollar should rebound as we move into December,” said Michael Brown, senior research strategist at Pepperstone, adding that Wednesday’s move, which brought the dollar down from back below 106, seemed a bit “out of touch”.
“We are still talking about the exceptionalism of the United States, the incredibly long list of problems in the eurozone, and this morning we have concerns about the French budget.”
The euro strengthened after rising sharply on Wednesday following hawkish comments from European Central Bank board member Isabel Schnabel.
She told Bloomberg that interest rate cuts should be gradual and aim for neutral rather than accommodative territory, prompting investors to back off from more aggressive expectations of rate cuts and buy the common currency.
“Not only has the downside momentum subsided, but upside momentum is also starting to pick up,” said Quek Ser Leang, strategist at UOB in Singapore.
“We view the current price action as part of a rebound that could potentially reach $1.0650.”
Inflation readings released later in the session in Germany will provide another test as the single currency hits its worst monthly performance in two-and-a-half years. Eyes are also on France’s delicate coalition government, which is struggling to pass a budget.
HOLIDAY PEACE
The pound sterling fell to 1.2649 per dollar while the Swedish krona strengthened against the dollar and euro as data showed business and consumer sentiment in Sweden improved in November.
The Australian dollar recovered from early weakness to trade unchanged at $0.64946 as Reserve Bank of Australia Governor Michele Bullock said core inflation was too high to allow interest rate cuts in the near future.
While major currencies were in a bit of a slump, there was some action in emerging markets.
The Mexican peso rose more than 1.5% after Donald Trump announced on his Truth Social platform that Mexican President Claudia Sheinbaum “agreed to stop migration through Mexico,” which Trump linked to his promise to impose tariffs.
Sheinbaum said she presented Mexico’s migration strategy, which is “not closing borders, but building bridges.”
South Korea’s gain was also slightly weaker, with dealers reporting that authorities had stabilized it after the central bank cut interest rates for a second straight meeting – an outcome that only four of 38 economists polled by Reuters had predicted.
The Russian ruble has been trading around 110 per dollar after losing almost a third of its value since August as Russia’s central bank said it would halt forex purchases until the end of the year to support the currency.
The Brazilian real fell to an all-time low amid concerns about the impact of tax cuts on a tight budget.
Investors strengthened their compact positions in most emerging Asian currencies, including the Singapore dollar and Indonesian rupiah, on concerns about Trump’s tariff promises.
