The dollar rose on Thursday alongside a reassessment of expectations regarding the scale of cuts that the Federal Reserve (the U.S. central bank) may implement on interest rates this year, amid caution in the markets following heightened risk appetite last month. The dollar surged to its highest level against the yen in two weeks in Asia, coinciding with the end of the New Year holiday in Japan and the resumption of trading activities.
The dollar climbed against the yen to 143.90 before reaching 143.75 in the latest trading, after jumping over 0.9 percent against the Japanese currency in the previous session for its best day since October. The Australian dollar, often seen as a gauge of risk appetite, struggled to move away from its two-week low of 0.6703 U.S. dollars recorded on Wednesday, reaching 0.6744 U.S. dollars in the latest trading.
The risk-sensitive New Zealand dollar traded at 0.6266 U.S. dollars, after touching a two-week low of 0.6221 U.S. dollars in the previous session. Minutes from the Federal Reserve's monetary policy meeting in December, released on Wednesday, revealed that officials are convinced inflation has been brought under control, with concerns shifting towards the risks of "overly tight" monetary policy on the economy.
However, the Federal Reserve did not indicate clear signals for the beginning of rate cuts, as it still sees the necessity of maintaining a tight monetary policy for some time. Christopher Wong, a currency expert at OCBC, stated that "the message indicating sustained high interest rates adds another layer to the strong cuts anticipated by markets."
Against a basket of currencies, the dollar rose 0.03 percent to 102.43, close to its highest level in three weeks at 102.73 recorded during the previous session. The euro increased by 0.09 percent to 1.0931 U.S. dollars, while the pound remained steady near its three-week low at 1.2667 U.S. dollars.
Separate data released on Wednesday showed that the contraction in the U.S. manufacturing sector continued in December, albeit at a slower pace, while job openings in the U.S. market declined for the third consecutive month in November. A non-farm payroll report is expected to be released on Friday, which may provide more clarity on the scope available for the Federal Reserve to cut interest rates.
On the geopolitical front, Hezbollah in Lebanon and the Israeli army made statements indicating both parties' desire to avoid expanding the conflict beyond the Gaza Strip, following a drone strike in Beirut that killed the deputy head of the political bureau of the Palestinian resistance movement (Hamas).
