Investing.com – The U.S. dollar fell on Monday, giving up some of its recent gains but remaining near a two-year high ahead of the release of key jobs data later in the week and as President Donald Trump’s inauguration approaches.

At 2:50 p.m. ET (19:50 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, fell 0.6% to 108.115, retreating after hitting a more than two-year high last week.

The dollar starts the week in negative territory

The dollar started the up-to-date week lower as investors cautiously await the release of closely watched data on Friday that will provide greater clarity on the health of the world’s largest economy.

The report is expected to show that the world’s largest economy added 154,000 jobs in December, while the rate is expected to remain steady at 4.2%.

This result would bring average monthly job growth in 2024 to around 180,000, a slowdown from the last three years but still an indication of labor market strength.

This should not change the Federal Reserve’s position on interest rates, as the US central bank has signaled only two more cuts this year, compared to its previous forecast of four cuts.

Additional support for the dollar was also provided by uncertainty about President-elect Donald Trump’s plans for high import tariffs, tax cuts and immigration restrictions after his inauguration on January 20.

On Monday, the Washington Post reported that advisers to President-elect Donald Trump are examining tariff plans that would apply to every country but would cover only critical imports.

However, this report was debunked by Trump’s comments on social media, in which the president-elect stated that the newspaper article was false and that his tariff policies would not be relaxed.

“The dollar may lose some momentum this week as the return of normal market conditions allows for some reconciliation with slightly lower interest rates. However, the proximity of Trump’s inauguration and the sturdy narrative of a hawkish Fed may make any USD correction short-lived,” ING analysts said in a note.

The euro rebounded after PMI data

In Europe, it rose 0.7% to 1.0387, supported by a moderate recovery in the euro zone services industry in December.

The final HCOB score for the block, compiled by S&P Global, rose to 49.6 in December from 48.3 in November.

The main index was boosted by the bloc’s dominant services sector, whose PMI rebounded above breakeven to 51.6 from November’s 49.5, but was weakened by a sharper decline in factory activity.

The euro fell to its weakest level in over two years against the dollar last week, with investors expecting much further interest rate cuts from the European Central Bank in 2025, with markets pricing in an easing of at least 100 basis points.

rose slightly more than expected in December, ahead of Tuesday’s flash data, and is expected to show that inflation pressures in the euro bloc remain contained.

The German CPI rose by 0.4% compared to December, a significant raise compared to the previous month’s decline of 0.2% and above the expected raise of 0.3%. The annual figure rose 2.6%, above the 2.4% expected and the 2.2% gain recorded in November.

rose 0.7% to 1.2513, benefiting from a sell-off in the dollar after falling about 1.4% last week.

The Bank of England left interest rates unchanged last month after consumer prices rose above target, with investors expecting cuts from the Bank of England of around 60 basis points in 2025.

Yuan goes lower

In Asia, it rose 0.4% to 7.3483, with the pair rising to its highest level since early 2008, with yuan weakness due to economic challenges and a widening yield gap with the US.

To counter fears of further depreciation, the People’s Bank of China reaffirmed its commitment to supporting the yuan on Monday, setting its daily benchmark rate at a higher-than-critical level of 7.2 per dollar.

December data released on Monday failed to provide any support for the yuan, despite recording its fastest growth in seven months.

rose 0.2% to 157.5, despite data showing the country’s services sector grew for a second straight month in December, driven by sturdy demand and ongoing business expansion.

Elsewhere, it fell 0.5% to 1.4371 as Canadian Prime Minister Justin Trudeau announced his intention to step down.