US Dollar Strengthens for Third Straight Session, Sterling Weakness Persists
The US dollar continued its strong performance on Thursday, rising for a third consecutive day as Treasury yields dipped but remained at elevated levels due to concerns over tariffs under the incoming Trump administration. The US Treasury yield hit an 8.5-month high of 4.73% on Wednesday, with a resilient economy and likely tariffs rekindling inflation concerns and heightening expectations for a slower path of interest rate cuts.
According to analysts, the recent economic data has shown a labor market on a solid footing, and the minutes from the Fed’s December meeting revealed that policymakers raised new inflation concerns, suggesting the new administration’s plans may slow economic growth and increase unemployment.
Investors will watch Friday’s government payrolls report to gauge the central bank’s approach to cutting interest rates. “Most of the economic readings that have come in have been a little stronger than expected. If we get a non-farm payrolls tomorrow that’s stronger than what’s expected, that’s another indicator that the economy is not cooling off and that inflation is going to get more pressures,” said Joseph Trevisani, senior analyst at FX Street.
The dollar index, which measures the greenback against a basket of currencies, rose 0.12% to 109.15, with the euro declining 0.16% to $1.0301. Fed officials, including Federal Reserve Bank of Boston President Susan Collins, Philadelphia Federal Reserve President Patrick Harker, and Kansas City Federal Reserve President Jeff Schmid, expressed caution over future rate cuts, citing uncertainty over the economic outlook.
Sterling weakened 0.46% to $1.2306, its third straight session of declines, as Britain’s finance minister faced pressure due to concerns over Trump’s policies, pushing the British government’s borrowing costs higher. Meanwhile, the Japanese yen strengthened 0.17% to 158.06 per dollar, despite a report showing Japan’s inflation-adjusted real wages fell for the fourth straight month.