Firm Dollar Adds Pressure to Sterling and Euro
The U.S. dollar drew strength from rising Treasury yields on Thursday, adding pressure to the pound and euro, while the yen edged up from recent lows, and the market waited for clarity on possible Trump tariffs.
The focus for markets in 2025 has been on U.S. President-elect Donald Trump’s agenda when he returns to the White House on Jan. 20, with analysts expecting his policies to both bolster growth and add to price pressures.
CNN on Wednesday reported that Trump was considering declaring a national economic emergency to provide legal justification for universal tariffs on allies and adversaries. On Monday, the Washington Post said Trump was looking at more nuanced tariffs, which he later denied.
Concerns that policies introduced by the Trump administration could reignite inflation has led bond yields higher, with the yield on the benchmark 10-year U.S. Treasury note hitting 4.73% on Wednesday, its highest since April 25. It was at 4.6628% on Thursday.
“Trump’s shifting narrative on tariffs has undoubtedly had an effect on USD. It seems this capriciousness is something markets will have to adapt to over the coming four years,” said Kieran Williams, head of Asia FX at InTouch Capital Markets.
The bond market sell-off has driven dollar strength, which is overshadowing other currencies.
Among the most affected was the pound. One of the best-performing currencies against the dollar in the last couple of years, it has fallen 1.9% over three days.
Sterling slid to $1.2239 on Thursday, its weakest since November 2023, even as British government bond yields hit multi-year highs. The pound was last down about 0.64% at $1.2285.
Ordinarily, higher gilt yields, meaning investors want a higher return for risk, would support the pound.
BRITISH GLOOM
As confidence in Britain’s fiscal outlook deteriorates, the sell-off in UK government bond markets resumed early on Thursday before a slight recovery that left 10-year and 30-year gilt yields around flat.
“Such a simultaneous sell-off in currency and bonds is rather unusual for a G10 country,” said Michael Pfister, FX analyst at Commerzbank.
“It seems to be the culmination of a development that began several months ago. The new Labour government’s approval ratings are at record lows just a few months after the election, and business and consumer sentiment is severely depressed.”
The euro also eased, albeit less than the pound, to $1.0298, close to the two-year low of $1.0224 it hit last week. Investors remain worried the single currency may fall to the psychological $1 mark this year due to tariff uncertainties.
Source: reuters
Via: norvanreports
