Wayne Cole
SYDNEY (Reuters) – The dollar looked set to extend its rally on Monday as high Treasury yields and a more restrained outlook for U.S. interest rate cuts made it more attractive, although the risk of intervention weakened the yen.
Yen bears were tight after Bank of Japan Governor Kazuo Ueda signaled a possible interest rate hike in December in a speech later Monday, partly due to the currency’s weakness.
Ueda will deliver a speech at 01:00 GMT, followed by a media conference at 04:45-05:15 GMT. This will be his first opportunity to comment directly on monetary policy since Donald Trump’s victory in the US presidential election on November 5.
Markets indicate about a 55% chance of a quarter-point rate hike to 0.5% at the December 19 BOJ meeting.
Japanese Finance Minister Katsunobu Kato on Friday warned the market of possible intervention if the yen falls too challenging and rapid, sending the dollar down 1.3% to 154.30 yen. Support is currently at 153.86, with resistance at last week’s high at 156.76.
This pullback helped keep the euro at $1.0530 for now, although it was still uncomfortably close to the recent one-year low of $1.0496.
The dollar held steady against a basket of currencies at 106.730 after hitting a yearly high of 107.07 on Friday. The index rose 1.6% on the week, having posted six-week gains over the past seven.
This augment coincided with a piercing augment in the 10-year Treasury yield, which has risen 70 basis points since early October, driving the 10-year Treasury yield to a 5.4% augment.
US PRICE LIST IS UNIQUE
“While a period of consolidation is likely in the near term, we have revised our dollar forecasts upwards and now anticipate the dollar will continue to appreciate by another 5% by the end of 2025.” – said Jonas Goltermann, deputy chief economist for markets at Capital Economics.
“This is based primarily on the view that Trump will continue with the basic tariff policies he proposed during the campaign and that the U.S. economy will continue to outperform other competing economies.”
Markets are eagerly awaiting news of who Trump will choose as Treasury secretary, and the top candidates for the job include Howard Lutnick, CEO of Cantor Fitzgerald and investor Scott Bessent.
Analysts generally assume that Trump’s touted policies of tariffs, immigration restrictions and debt-financed tax cuts will be inflationary, thus limiting the Federal Reserve’s ability to further cut interest rates.
Futures have a 60% chance of the Fed easing monetary policy by a quarter of a point in December, with just 77 basis points of cuts priced in by the end of 2025, down from more than 100 points a few weeks ago.
At least seven Fed officials are scheduled to speak this week and investors are betting they will be cautious about aggressive cuts.
A horde of European central bankers are also speaking this week, which may sound more dovish given recent feeble economic data and the risk that tariffs will hit EU trade.
The data calendar for the US is tight this week, but the UK, Japan and Canada already have major inflation reports, while manufacturing sector surveys due at the end of the week will give an indication of post-election sentiment in the US.
