The dollar strengthened against the yen on Friday, but remained on track to end the week lower after six straight weeks of gains, as investors awaited Donald Trump’s presidential inauguration and clarity on the incoming administration’s policy direction.
The yen is poised for its strongest weekly performance in more than a month as expectations of a Bank of Japan rate hike next week rise, putting the dollar on the back foot.
It rose more than 1% against the dollar this week, reversing last week’s decline, and touched a one-month high of 154.98 per dollar earlier Friday.
The greenback was last up 0.52% against the yen at 155.915.
“The market is pricing in a Bank of Japan rate hike of 25 basis points almost completely discounted,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
“What’s wrong with this is that if Trump’s inauguration and first few days shake up markets, then the BOJ might delay raising interest rates and that would be negative for the yen.”
Statements from BOJ officials as well as Japanese data showing persistent price pressures and strong wage growth have helped increase market confidence that a rate change is imminent, and traders are pricing in an 80% chance of a rate hike next week.
Sources also told Reuters that the central bank will likely raise interest rates next week unless there is a market shock when Trump takes office.
The dollar has surged in recent weeks on the back of rising Treasury yields, reflecting expectations that President-elect Trump’s policies could increase inflation at a time when the US economy is already strong.
But bond markets got some help from a relentless selloff after weaker US core inflation data on Wednesday, plus remarks from Federal Reserve Governor Christopher Waller on Thursday, who said three or four rate cuts were still possible this year if the data supports that matter.
This caused markets to increase their bets on the Fed cutting interest rates this year, putting pressure on the dollar ahead of Trump’s return to the White House next week.
Money markets are currently pricing in about a 40 basis point cut in US interest rates by 2025.
“Certainly, on Trump’s Inauguration Day and the rumors that there were 100 executive orders that might be issued, it kept everyone on the edge of their seats, waiting to see how things would play out,” said Brad Bechtel, global head of FX at Jefferies in New York.
“Things are going to be a little different until we understand more about what Trump is actually doing.”
Investors now await Trump’s inaugural speech on Monday to gain a better understanding of his policy moves, with a volatile market period expected ahead.
Sterling was down 0.4% at $1.2196, not far from a 14-month low hit on Monday.
UK retail sales fell unexpectedly in December, data showed on Friday raising the risk of an economic contraction in the fourth quarter.
The euro remained flat at $1.0305.
This left the dollar index, which measures the US currency against six other units, up 0.1% at 109.06, well off a two-year high reached at the start of the week.
The index is expected to fall about 0.5% this week, which would halt its six-week advance.
China’s yuan was little changed at 7.3254 per dollar after data showed the world’s second-largest economy grew 5.4% in the fourth quarter, significantly beating analysts’ expectations and putting full-year growth in 2024 at 5%, right in the middle of target. Beijing.
China’s currency has been seen at the forefront of tariff risks since Trump’s presidency. Chinese President Xi Jinping held a telephone conversation with Trump, state media Xinhua reported on Friday.
“Who knows what was said, but most likely Trump was basically warning them that something was going to happen. We will see later. But I think the market is waiting for that,” Bechtel said.
Bitcoin was last up 3.63% at $103,842 on Friday, amid hopes in the crypto industry that the incoming Trump administration will herald a change in cryptocurrency policy.
Currency offer prices on January 17 15:47 GMT
Source: Reuters (Reporting by Laura Matthews in New York and Ankur Banerjee in Singapore and Greta Rosen Fondahn in Gdansk; Editing by Edwina Gibbs, Kim Coghill, Jane Merriman and Toby Chopra)
