U.S. Dollar Edges Lower Ahead of Key Data; Sterling Remains Weak
Treasury Yields Fall to New Lows
The U.S. dollar edged lower in early European trade Thursday ahead of key growth data, while sterling continued to fall in the wake of rapidly cooling U.K. inflation. At 04:30 ET (09:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 102.010, down almost 2% so far this year. Several Federal Reserve officials have tried to rein in expectations for a number of U.S. interest rate cuts in 2024, in the wake of last week’s Fed dovish policy-setting meeting. But ten-year U.S. Treasury yields hit a seven-month low of 3.847% overnight, dragging the dollar lower with traders pricing in the possibility that rate cuts could come as soon as March.
Pound Continues to Weaken
In Europe, the pound fell 0.2% to 1.2618, with sterling continuing to weaken after data released Wednesday showed that inflation plunged to its lowest reading since September 2021. Earlier Thursday, data showed that Britain ran up a higher-than-expected budget deficit in November, with public sector net borrowing totaling £14.3 billion ($18.1 billion), underscoring the limited room for pre-election tax cuts by Prime Minister Rishi Sunak’s government. The euro traded flat at 1.0938, with traders looking for several rate cuts from the ECB next year with the first moves potentially in the first quarter after inflation fell to 2.4% in November on an annual basis, not far away from the central bank’s 2% medium-term target.
Yen Recovers After Sharp Losses
Elsewhere, the yen traded 0.3% lower at 143.16, with the yen recovering a measure of steep losses earlier this week after the Bank of Japan maintained its ultra-dovish course. Focus this week is on Japanese inflation due on Friday. The yuan traded 0.2% higher at 7.1467, with the yuan weakening in the wake of the PBOC left its loan prime rate unchanged at record lows.
