Dollar climbs for 3rd straight session, sterling weakness continues

NEW YORK – The US dollar strengthened for a third straight session on Thursday as Treasury yields dipped but held at elevated levels on concerns over tariffs under the incoming Trump administration, while sterling’s recent weakness persisted.

US Treasury yields have been on an uptrend, with the benchmark 10-year note hitting an 8-1/2 month high of 4.73% on Wednesday as a resilient economy and likely tariffs have rekindled inflation concerns and heightened expectations the Federal Reserve will take a slower path of interest rate cuts.

Recent economic data has shown a labor market on a solid footing and minutes from the Fed’s December meeting showed that policymakers raised new inflation concerns suggesting the new administration’s plans may slow economic growth and increase unemployment.

Investors will eye Friday’s key government payrolls report to gauge how aggressive the central bank will be in cutting interest rates.

“Most of the economic readings that have come in have been a little stronger than expected so if we get a non-farm payrolls tomorrow that is stronger than what’s expected that’s another indicator that the economy is not cooling off and that inflation is going to get more pressures,” said Joseph Trevisani, senior analyst at FX Street in New York.

“We’re also going to get the Trump administration which is going to change all sorts of things,” Trevisani added.

The dollar index, which measures the greenback against a basket of currencies, rose 0.12% to 109.15, with the euro down 0.16% at USD 1.0301.

Federal Reserve Bank of Boston President Susan Collins said on Thursday that significant uncertainty over the outlook calls for the central bank to move forward cautiously with future rate cuts while Philadelphia Federal Reserve President Patrick Harker said he still expects rate cuts, but any sort of imminent move down is not needed amid considerable uncertainty over the economic outlook.

In addition, Kansas City Federal Reserve President Jeff Schmid said he believes rates are near the point where the economy needs “neither restriction nor support,” while Fed Governor Michelle Bowman said the incoming administration’s future policies should not be prejudged.

Sterling weakened 0.46% to USD 1.2306, on track for a third straight session of declines after hitting its lowest level since Nov. 13, 2023 with Britain’s finance minister under pressure as concerns over Trump’s policies have pushed the British government’s borrowing costs higher.

Bank of England Deputy Governor Sarah Breeden said a rate cut was supported by recent evidence, although it was difficult to know how quickly.

Erik Nelson, macro strategist at Wells Fargo sees a risk of continued underperformance in the pound while UK gilt yields begin to turn lower.

The Japanese yen strengthened 0.17% to 158.06 per dollar. Government data on Thursday showed Japan’s inflation-adjusted real wages fell for the fourth straight month in November, weighed down by higher prices even as base pay grew at the fastest pace in more than three decades.

Analysts at Goldman Sachs believe the discussions at the January branch managers meeting support their view of a January rate hike from the Bank of Japan.

The US stock market was closed on Thursday. US bond markets were set for an early close for former president Jimmy Carter’s funeral.

(Reporting by Chuck Mikolajczak; Editing by Alexander Smith and Diane Craft)