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The U.S. currency remained stable on Thursday following a two-week peak in the previous session, bolstered by increasing U.S. Treasury yields despite expectations of interest rate reductions by the Federal Reserve next week.
The Australian dollar experienced a surge after employment data exceeded predictions, while the euro maintained its position ahead of the European Central Bank’s (ECB) upcoming monetary policy announcement.
The dollar retained a significant portion of its previous day’s gains, aided by rising U.S. Treasury yields on Wednesday. The increase was attributed to the Treasury Department’s sale of long-term supply and data indicating an expanding U.S. budget deficit.
The November consumer price index (CPI) report revealed a 0.3% increase, the most substantial gain since April, following four consecutive months of 0.2% advancements.
According to the CME FedWatch tool, markets now anticipate a 98.6% likelihood of a 25 basis point rate cut by the Fed at its Dec. 17-18 meeting, up from 78.1% a week prior.
Investors await additional U.S. inflation data with the upcoming release of the producer price index (PPI).
The dollar index, which gauges the greenback against six major currencies, experienced a slight decline of 0.07% to 106.53, remaining close to Wednesday’s two-week high of 106.81.
Against the yen, the dollar decreased by 0.21% to 152.14, after reaching 152.845 yen on Wednesday, its strongest level since Nov. 27.
Market expectations for a December rate hike from the Bank of Japan have been further reduced following a Bloomberg report suggesting Japan’s central bank sees “little cost” in delaying action.
Traders also focused on developments from China’s closed-door Central Economic Work Conference, with the offshore yuan slightly appreciating to 7.2735 per dollar.
The Australian dollar rose 0.6% to $0.64075, rebounding from its lowest point since November 2023. The New Zealand dollar also saw an increase of approximately 0.41%, reaching $0.5807 after slipping to a two-year low in the previous session. This modest recovery followed positive sentiment from benign U.S. consumer inflation data but remains under pressure due to expectations of another potential rate cut by the Reserve Bank of New Zealand in February.
The kiwi gained further as it responded to global economic signals, remaining sensitive to developments regarding China’s currency policies due to New Zealand’s reliance on China as a key export market.
The euro traded at $1.0506, up 0.09% ahead of the ECB’s monetary policy meeting, where a quarter-basis-point cut is widely anticipated. Attention will be on potential indications of the central bank’s future rate outlook.
Sterling appreciated by 0.14% to $1.2768, while the Swiss franc traded at 0.88315 per dollar as markets considered the possibility of a half-point rate cut from the Swiss National Bank.
Following the Bank of Canada’s 50 basis point reduction in its key policy rate to 3.25% on Wednesday, the dollar last traded at C$1.41435 against the Canadian dollar.