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Gains In The US Dollar Yesterday Were Followed By Gains Today

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Gains In The US Dollar Yesterday Were Followed By Gains Today

(CTN News) – The US Dollar (USD) saw another increase in value on Wednesday, continuing the upward trend from the previous day. This rise can be attributed to higher U.S. Treasury yields and a cautious sentiment affecting Wall Street.

Trading activity was relatively quiet due to Japanese markets being closed for a holiday. Investors were eagerly awaiting important U.S. economic releases later in the day, including the minutes from the Federal Reserve’s December meeting.

In contrast, the euro declined by 0.2% against the dollar, reaching its lowest level since December 19th. It had experienced a significant drop of 0.95% on Tuesday, the largest daily decrease since July.

As a result, the dollar index, which measures the currency against six major peers, increased by 0.22% to 102.47, building on the 0.86% increase from the previous day.

In November and December, concerns about inflation and a dovish stance from the Federal Reserve had led to speculation of U.S. rate cuts in 2024. This caused the dollar to weaken and triggered a rally in Treasuries and stocks. However, these trends did not continue into the New Year. On the first trading session of 2024, the S&P 500 and Nasdaq Composite closed lower, primarily due to a decline in big tech names. As a result, Treasury yields rose and the appeal of U.S. debt increased, driving the dollar higher on Tuesday.

Alvin Tan, head of Asia FX strategy at RBC Capital Markets, believes that the market’s overreaction in December was unjustified and attributed it to expectations of rate cuts by the Fed.

He thinks this reversal in the market can continue for a while longer. The greenback strengthened against the yen, rising by 0.61% to 142.84.

Investors are eagerly awaiting the release of the minutes from the Fed’s December meeting to gain insight into rate cut plans. Tan believes that as more people return to the market, the focus will shift towards economic data. The New Zealand dollar declined by 0.13% to $0.6244.

The British pound remained unchanged at $1.2622 after a 0.87% drop in the previous session. Analysts noted that concerns over escalating geopolitical tensions, particularly after Israel’s drone strike in Lebanon, contributed to the risk-off sentiment in the market.

Ray Attrill, head of FX strategy at National Australia Bank, suggested that the markets are finding it difficult to ignore geopolitical factors as they start the new year.

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