In holiday-thinned trade on Tuesday, the dollar struggled to find a floor, pressured by signs of cooling inflation in the U.S., which is expected to provide room for the Federal Reserve to ease interest rates next year. The yen steadied near its recent five-month peak amid expectations that the Bank of Japan (BOJ) may end its ultra-easy policy soon. Currency movements were subdued post-Christmas, with markets in the UK, Australia, New Zealand, and Hong Kong still closed for a public holiday.
Against the greenback, the New Zealand dollar reached a fresh five-month peak of $0.6325, while the Australian dollar hovered near its recent five-month top at $0.6817. The euro inched 0.03% higher to $1.1024, close to a five-month top of $1.1040 touched last week, and sterling remained little changed at $1.2706.
Data released last Friday showed a decline in U.S. prices in November, the first time in over 3-1/2 years, and the annual inflation increase slipped below 3%, raising expectations of a Fedinterest rate cut in March. The Fed’s openness to rate cuts in 2024, signaled at the final policy meeting for the year, has weighed on the dollar, with the dollar index near a five-month low of 101.42 last week.
In Asia, the yen rose 0.1% to 142.25 per dollar, supported by BOJ Governor Kazuo Ueda’s comments on Monday, expressing optimism about Japan’s prospects of escaping a low-inflation environment. The Chinese yuan dipped against the greenback on rising expectations of further monetary easing measures from Beijing, as several state banks lowered interest rates on some deposits.
The onshore yuan edged 0.1% lower to 7.1433 per dollar, while its offshore counterpart last stood at 7.1461 per dollar.