US dollar close to multi-week lows versus euro and yen before US data

Euro supported by ECB’s stance and strong economic data.

Euro supported by ECB’s The U.S. dollar hovered around multi-week lows against the euro and yen on Tuesday as investors awaited U.S. ​economic data later in the session that could affect expectations for the Federal Reserve’s policy path.

Central bank decisions are in focus this week with the European Central Bank and ⁠Bank of England holding meetings on Thursday, while the Bank of Japan will announce its policy decision on Friday.

Economic data showing the euro zone economy remaining resilient, despite U.S. import ⁠tariffs, ‌supported the ECB’s higher-for-longer policy rate stance and bolstered the euro.

Meanwhile, the absence of pushback from the ECB on market bets for rate hikes in late 2026 or early 2027 may be read as tacit approval, leaving room for a hawkish surprise at this week’s policy ⁠meeting.

The euro was up 0.1% to $1.1761 after hitting $1.1769 on Monday, its highest since September 24.

BOJ RATE OUTLOOK IN FOCUS AS HIKE PRICED IN

A rate hike from the BoJ is largely baked in, but any signal that policymakers could tighten again before spring wage talks would mark a hawkish shift.

Big Japanese manufacturers’ business sentiment hit a four-year high in the three months to December, supporting expectations for additional tightening, but analysts said the BoJ’s policy update may ⁠fail to support the yen as fiscal concerns weigh.

Japan’s ​government plans to introduce additional tax breaks to spur investment, despite concerns in financial markets about the country’s rising debt.

The dollar dropped 0.25% to 154.85 yen ahead of the BoJ decision, while renewed ‍volatility sent investors looking for havens. The dollar hit 154.34 in early December, its lowest since November 14.

Morgan Stanley said it was neutral on dollar/yen but saw potential downside risk if U.S. labour market data ​continues to deteriorate.

U.S. DATA FOG IS CLEARING

Fed funds futures are pricing an implied 75.6% probability of a hold in rates at the U.S. central bank’s next meeting on January 28, unchanged from a day earlier, according to the CME Group’s FedWatch tool.

“Consensus sees November payrolls slightly below trend at plus 50k and unemployment at 4.4–4.5%, a just-about-right print that would temper labour concerns while preserving optionality for cuts,” said Stefan Koopman, senior macro strategist at Rabobank.

“A weaker print could spur risk-off moves: equities lower, a softer dollar, and flows into cash and Treasuries,” he added.

The dollar index, which measures the currency against a basket of six key rivals, was trading at 98.20, a little lower after earlier approaching the lowest level since October 17.

Analysts hold mixed views: some expect the data to clarify employment trends during the U.S. government shutdown, while others doubt it will fully lift the fog.

CHINESE YUAN AT 15-MONTH HIGHS

The Chinese yuan trading offshore was last 0.1% firmer at 7.0371 to the ⁠dollar, its strongest since October 3, 2024.

“We view this as a deliberate move to steer the RMB ‌on a gradual appreciation path while maintaining market order,” said Christopher Wong, currency strategist at OCBC in Singapore. He added he was watching whether policymakers would attempt to slow the pace of appreciation through daily fixings.

The Australian dollar was last 0.05% weaker at $0.6642, little changed following a private survey showing that consumer sentiment slid in ‌December.

The kiwi dollar was ⁠down 0.1% at $0.5778 as markets pared bets on rate hikes next year and the government’s mid-year budget revealed a small reduction in bond issuance.

Cryptocurrency markets fluctuated between gains ⁠and losses after a pullback on Monday.

© ZAWYA