Currency Market Update: Euro and Yuan Fluctuate While Yen Strengthens
The euro saw a slight increase against the dollar today. Due to the political crisis in France, investors are seeking protection against price fluctuations. On the other hand, the yuan has declined to its lowest level in 13 months due to tariff risks and weakness in the Chinese economy.
The Japanese yen has gained 4.5% over the last two weeks, reaching its highest levels in six weeks, although it has slightly declined against the dollar. Expectations are strengthening that Japan may raise interest rates later this month.
After being the weakest G10 currency in November, the euro started this month with a 0.7% decline. However, it rose by 0.2% today to $1.05185. French Prime Minister Michel Barnier will face a vote of confidence on Wednesday due to widespread opposition to his budget. The dollar maintains its strength.
Historical data shows that the dollar typically weakens in December, attributed to companies increasing demand for foreign currencies as the year-end approaches. However, this year, investors are closely watching the policies of President-elect Donald Trump. Over the weekend, Trump threatened to impose punitive tariffs if BRICS countries did not commit to accepting the dollar as their reserve currency.
Trump's remarks strengthen the belief that the U.S. will rely on tariffs to address its large merchandise trade deficit and that the dollar will not be weakened. Additionally, it is anticipated that the euro/dollar exchange rate may drop to 1 by mid-next year. The Chinese yuan has also seen sharp sell-offs amid expectations of facing more tariffs from Trump.
As U.S. and Asian stocks rise, the dollar has slightly declined. European and Asian stock markets are up today. After technology companies propelled Wall Street to record levels, the dollar stabilized from the previous day's gains. Europe's Stoxx 600 index rose by 0.42%, the UK's FTSE 100 by 0.62%, while France's CAC 40 increased by 0.38%.
Japan's technology-heavy Nikkei index gained 1.91%, and the MSCI Asia index rose by 1.16%. Furthermore, Australia's stock benchmark tested all-time highs. Meanwhile, U.S. S&P 500 and Nasdaq futures are trading sideways, influenced by technology stocks.
The dollar index fell slightly today, dipping below 106.5. The dollar rose due to the political crisis in France, Trump's tariff threats, and better-than-expected manufacturing data in the U.S. However, comments from Fed official Christopher Waller signaling the possibility of an imminent rate cut put pressure on the dollar.
The Chinese yuan is weakening under customs tariff risks. The yuan faced challenges due to increasing tariff threats from the U.S. and fell to its lowest level in 13 months in the offshore market. Trump stated that he would impose 100% tariffs if BRICS members committed to developing a new currency to replace the dollar or supporting another currency.
Sensitive two-year U.S. Treasury yields approached four-week lows on Tuesday. Investors see a 75% chance of a 25-basis-point rate cut at this month's Fed meeting. Job openings data and monthly employment reports continue to be the focus of the market.