Investing.com – The US dollar experienced a slight decline on Monday, as US bond yields fell back but remained close to recent peaks as the year comes to a close.
As of 04:05 ET (09:55 GMT), the Dollar Index, which measures the value of the dollar against a basket of six other currencies, was down by 0.1% at 107.690.
Despite this drop, the index is on track for a monthly increase of over 2%, raising its year-to-date gain to nearly 7%.
Dollar Set for Significant Annual Gains
The dollar’s strength has been bolstered by rising US Treasury yields, with the benchmark 10-year note recently reaching a seven-month high. However, this yield dipped to 4.599% on Monday.
Donald Trump’s recent election as president has also provided support for the dollar, as his proposed policies of reduced regulation, tax cuts, increased tariffs, and stricter immigration are perceived as pro-growth and inflationary. These factors will likely prevent the Federal Reserve from making substantial interest rate cuts in the upcoming year.
At its last policy meeting earlier this month, the US central bank signaled it expects only two 25 basis point rate cuts in 2025, with markets anticipating around 35 basis points of easing for that year.
Due to the holiday season’s impact, trading ranges are expected to be tight this week, with attention focused on weekly figures released on Thursday and additional data a day later, along with remarks from FOMC members.
Euro Strengthens Following Spanish Inflation Data
In Europe, the euro rose by 0.1% to 1.0439, gaining slightly after statistics revealed that Spain’s annual EU-harmonized inflation increased to 2.8% in December, up from 2.4% in November.
The European Central Bank (ECB) cut interest rates earlier this month and hinted at more cuts to follow as the region’s economic growth stalls.
However, ECB Governing Council member Robert Holzmann indicated on Saturday that the next interest rate reduction might take longer to implement, following a recent increase in inflation. Inflation accelerated to 2.2% in November, compared to 2.0% the previous month, exceeding the ECB’s target rate of 2%.
Additionally, the British pound increased by 0.1% to 1.2595, with limited UK economic data available ahead of Thursday’s upcoming release.
This release is anticipated to show that the UK’s manufacturing sector remained well within contraction territory in December, following data that revealed no economic growth in Britain during the third quarter.
The Bank of England’s policymakers voted 6-3 to keep interest rates steady during their meeting earlier this month, reflecting a more dovish position than had been expected, which indicates potential rate cuts next year.
Yen Remains Weak; Intervention Risks Provide Support
In Asia, the yen traded mostly unchanged at 157.76, hovering near five-month highs for the pair, with the threat of intervention by Japan preventing any attempts to breach the 160 level last observed in July.
The Bank of Japan has indicated a slow pace for future interest rate hikes after maintaining the rate at 0.25% in its most recent meeting.
Additionally, the Chinese yuan appreciated by 0.2% to 7.3136, staying close to a one-year high, influenced by expectations of increased fiscal spending and more accommodative monetary conditions in the year ahead.
