The US Dollar Index slipped lower on Monday, trading 0.3% down to 108.925. Despite this dip, the dollar remains close to the more than two-year high it reached last week. Let’s delve deeper into the factors influencing the dollar’s performance.
## Dollar on the Backfoot
– The dollar has gained around 4% since the November US presidential election.
– Traders anticipate that Trump’s policies will be inflationary, leading to higher interest rates for a longer period.
– Volumes are expected to thin out due to the US markets being closed for the Martin Luther King Jr. Day holiday.
– Investors are eagerly waiting for Trump’s inauguration speech, where he is expected to sign a flurry of executive orders.
Analysts at ING highlighted the significance of Trump’s first-day actions, especially in terms of tariffs and trade policies. The dollar, which has been bought on the rumor, might face some selling on the fact, but there are expectations of a rebound with plenty of dollar buyers.
## Euro Bounces from Two-Year Low
– The euro rose by 0.3% to 1.0313 but remains near the two-year low it touched last week.
– Concerns about a trade war escalated after ECB’s Isabel Schnabel mentioned that a trade conflict was highly likely.
– Inflation data for December showed a lower-than-expected increase of 0.8% on the year.
– The European Central Bank has been cutting interest rates and is likely to continue doing so in the coming months.
The pound sterling is also facing challenges, with recent weak economic data pointing towards potential interest rate cuts in the near future.
## Yen Awaits BoJ Meeting
– The yen dropped by 0.1% to 156.19 as markets anticipate an interest rate hike at the Bank of Japan’s upcoming policy meeting.
– The Bank of Japan is expected to raise interest rates, barring any market disruptions post-Trump’s inauguration.
– The Chinese yuan traded 0.2% lower after the People’s Bank of China decided to keep its rates steady to support the weakening yuan and boost economic recovery.
In conclusion, market sentiments are heavily influenced by political events, economic data, and central bank policies. Understanding these factors is crucial for investors to make informed decisions and navigate the volatile financial landscape effectively.