The dollar rose on Tuesday as investors scaled back their bets on near-term interest rate cuts by the Federal Reserve following hawkish comments from European Central Bank officials, while concerns over potential further attacks on ships in the Red Sea affected risk appetite. The dollar index against a basket of currencies increased by 0.253 percent to 102.90 points after rising 0.2 percent overnight in quiet trading during a public holiday in the US on Monday.
The euro fell by 0.3 percent to $1.09185, heading towards its largest one-day percentage decline in two weeks. The British pound traded at $1.2681, down 0.36 percent on the day, moving away from a nearly five-month high of $1.2825 reached in late December.
Comments from European Central Bank officials opposing early rate cuts overshadowed global interest rate expectations. A member of the Yemeni Houthi movement stated on Monday that the group would expand its targets in the Red Sea region to include US ships, vowing to continue attacks following US and UK strikes on its positions in Yemen.
Several Federal Reserve officials are scheduled to speak this week, including Christopher Waller, a Fed governor, who will address economic outlooks at the Brookings Institution later on Tuesday. The CME FedWatch tool indicated that markets are pricing a 70 percent chance for the Fed to cut rates by 25 basis points in March, down from 77 percent the previous day and 63 percent the week prior, highlighting changing expectations regarding rate cuts.
However, traders anticipate reductions totaling over 160 basis points this year, up from the previous week's expectation of 140 basis points. The yen fell by 0.20 percent to 146.07 per dollar after data showed that the Producer Price Index remained unchanged in December compared to the previous year, slowing for the twelfth consecutive month. This data suggests that consumer price inflation may moderate in the coming months, easing pressure on the Bank of Japan to gradually unwind its massive stimulus programs.
The Australian dollar declined by 0.53 percent to $0.6625, while the New Zealand dollar dropped by 0.46 percent to $0.61715.
