SINGAPORE (Reuters) – The dollar gained on Tuesday as political turmoil in France weakened the euro, while tariff risks and a weakness in China’s economy pushed the yuan to a 13-month low.
The resurgent yen has retreated slightly but remains near the dollar’s six-week highs as investors grow in confidence that Japan may raise interest rates in behind schedule December.
The euro, which was the weakest G10 currency until November, started the month with a 0.7% decline on Monday and was hovering at $1.0487 during the Asian session as the French government collapsed over a budget impasse. [EUR/GVD]
Improving U.S. industrial data and a decline in Chinese bond yields to record lows pushed the yuan below chart support, sending it soaring toward 7.3 per dollar and opening the way for another bout of broad dollar strengthening. [CNY/]
“It’s a lot easier for USD/G10 to go up if it’s not stuck in the mud,” said Donnelly, a trader and president of analyst firm Spectra Markets.
China pegged the yuan’s trading band at its weakest in over a year, and investors followed suit and sold the currency at 7.2996 per dollar. On Friday, the rate was 7.24. [CNY/]
The Australian dollar fell 0.7% on Monday and fell slightly to $0.6472. Economic data was mixed, with a larger-than-expected current account deficit offset by a jump in government spending that is likely to boost economic growth. The New Zealand dollar fell 0.2% to $0.5876.
The yen, the only G10 currency to gain against the dollar last month, hit its highest level since behind schedule October at 149.09 per dollar on Monday and last hit 150.15.
Market valuation implies a nearly 60% chance of an interest rate escalate in Japan by 25 basis points at the end of December.
Markets are waiting for Friday’s U.S. payrolls data to settle bets on whether the Federal Reserve will cut interest rates later this month – currently priced as an even chance.
Data on job vacancies will be released later on Tuesday.
The dollar typically experiences seasonal weakness in December as companies tend to purchase foreign currencies. This year, however, investors are closely watching the future administration of President-elect Donald Trump and maintaining a sturdy dollar position.
Over the weekend, Trump threatened to introduce punitive tariffs if BRICS member countries did not recognize the dollar as a reserve currency.
“These comments reinforce the view that Trump may not seek to weaken the dollar during his presidential term and will instead rely on tariffs to address the large U.S. goods trade imbalance,” Rabobank strategist Jane Foley said in a note.
“We maintain the view that parity may be reached approximately in the middle of next year. This moment may coincide with Trump’s introduction of novel tariffs.
