Authors: Rae Wee and Harry Robertson
SINGAPORE/LONDON (Reuters) – The dollar fell from a roughly two-year high on Monday as investors reversed some of the gains seen over the holiday season ahead of key data this week, while China’s yuan fell to a 16-month low.
In Canada, Prime Minister Justin Trudeau is increasingly announcing his intention to step down, although he has not yet made a final decision, a source told Reuters.
Markets appear to have largely priced this in and may welcome an election to clarify matters, leaving the US dollar down 0.36% against its Canadian counterpart to C$1.4395.
Currencies fell against the dollar over the holiday season as investors focused on the likely strength of the U.S. economy in 2025 and President-elect Donald Trump’s tariff policies.
However, the U.S. currency fell 0.48% to 108.44 on Monday, down from a more than two-year high of 109.54 reached on Thursday.
“This week will see a return to normal market conditions and an increase in currency liquidity,” said Francesco Pesole, currency strategist at ING.
“This could lead to some weakening in dollar momentum as the dollar may gain strength again after its exchange rate advantage slightly deteriorated over the holiday season.”
US Treasury yields remained relatively stable over the holiday period, while German government bond yields, the benchmark for the euro zone, rose.
The euro was last up 0.55% at $1.0368, away from a 25-month low hit last week.
Meanwhile, sterling rose 0.52% to $1.2488 after falling to an eight-month low on Thursday.
Also in the spotlight was the Chinese yuan, which weakened above the psychological level of 7.3 per dollar in the onshore market for the first time in 14 months on Friday after the People’s Bank of China (PBOC) aggressively defended this key threshold through most of December.
The rate fell to a 16-month low of 7.3301 per dollar.
“The weakening of the renminbi has intensified recently in anticipation of President-elect Trump taking swift action to further raise tariffs on imports from China,” said Lee Hardman, senior currency analyst at MUFG.
He also cited “the sharp widening yield gaps between the U.S. and China that are encouraging a weaker renminbi.”
Before Monday’s market open, the PBOC set the average rate around which the yuan can trade within a 2% range at 7.1876 per dollar.
US DATA
Investors paid attention to Friday’s closely watched U.S. nonfarm payrolls report for December, which was expected to provide greater clarity on the health of the world’s largest economy.
Many Fed policymakers are scheduled to speak this week, and they are likely to echo their colleagues’ recent comments that the fight to tame inflation is far from over.
The dollar has strengthened on expectations of fewer Fed cuts this year and hit a two-year high last week, pushing the euro to its weakest level in more than two years.
Uncertainty about Trump’s plans for high import tariffs, tax cuts and immigration restrictions after his inauguration on January 20 also provided additional support for the dollar.
“There is still huge uncertainty around the speed at which we will see policy announcements and how closely the reality will match the rhetoric, so I think that leaves huge uncertainty in the markets,” said Ray Attrill, director of currency strategy at National Australia Bank (OTC: ).
