Chuck Mikołajczak
NEW YORK (Reuters) – The U.S. dollar gained for a second straight session on Wednesday as the recent rise in U.S. bond yields continued on reports that President-elect Donald Trump is considering emergency measures to enable a fresh tariff program.
The yield on the benchmark 10-year U.S. Treasury note hit 4.73%, its highest level since April 25, after CNN reported that Trump was considering declaring a national economic emergency to provide legal basis for a series of universal tariffs on allies and adversaries.
Investors expect Trump’s policies, such as deregulation and lower taxes, to boost economic growth, but there are concerns that, along with the yet-to-be-confirmed tariff action, they could cause inflation to accelerate again.
On Monday, the Washington Post reported that Trump was considering more differentiated tariffs, something he later denied.
“It plays into the whole theme of a strong dollar, and even with the disappointing ADP (jobs data), the dollar is still stronger on the day,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
“It means that people should not oppose it. This is a real movement that has not exhausted itself yet.”
Earlier data on the U.S. labor market was mixed as ADP’s National Employment Report showed U.S. private-sector job growth slowed sharply in December to 122,000 from 146,000 the previous month. Economists polled by Reuters forecast an boost of 140,000.
But weekly jobless claims fell to an 11-month low of 201,000 and below the estimate of 218,000 in a Reuters poll of economists.
The dollar rate, which measures the greenback against a basket of currencies, rose 0.28% to 109.00, after hitting a more than two-year high of 109.54 last week, while the euro fell 0.2 % to $1.0318.
The data was released ahead of Friday’s key monthly jobs report from the U.S. government.
Markets are currently pricing in just 39 basis points of monetary easing from the Federal Reserve this year, with the first rate cut likely to come in June.
Fed Governor Christopher Waller said Wednesday that inflation should continue to fall in 2025, allowing the U.S. central bank to continue cutting interest rates, although at an uncertain pace.
The dollar held on to gains after minutes from the Dec. 17-18 Fed meeting showed policymakers agreed that inflation would likely continue to decline this year, but also saw a growing risk that price pressures could remain unchanged as they grapple with potential impact of the crisis Trump’s policy.
Sterling weakened 0.87% to $1.2364 after falling to $1.2321, the lowest level since April 22 and the second weakest of the year, although it occurred in conjunction with a piercing sell-off in British shares and government bonds, during when the 10-year Treasury yield reached 16 -1/2-year highs.
Against the yen, the dollar strengthened by 0.25% to 158.41 and approached the level of 160, prompting Japanese authorities to intervene to support the currency.
Consumer sentiment in Japan deteriorated in December, a government survey showed, casting doubt on the Bank of Japan’s view that solid household spending would shore up the economy and justify a further boost in interest rates.
