By Ankur Banerjee
SINGAPORE (Reuters) – The U.S. dollar charged ahead on Thursday underpinned by rising Treasury yields, putting the yen, sterling and euro under pressure near multi-month lows amid the shifting threat of tariffs.
The focus for markets in 2025 has been on U.S. President-elect Donald Trump’s policies as he steps back into the White House on Jan. 20, with analysts expecting his policies to both bolster growth and add to price pressures.
CNN on Wednesday reported that Trump is considering declaring a national economic emergency to provide legal justification for a series of universal tariffs on allies and adversaries. On Monday, the Washington Post said Trump was looking at more nuanced tariffs, which he later denied.
The evolving threat of tariffs has led bond yields higher, with the yield on the benchmark 10-year U.S. Treasury note hitting 4.73% on Wednesday, its highest since April 25. It was at 4.6769% in Asian hours.
“Trump’s shifting narrative on tariffs has undoubtedly had an effect on USD. It seems this capriciousness is something markets will have to adapt to over the coming four years,” said Kieran Williams, head of Asia FX at InTouch Capital Markets.
“While tariff talk is likely to support USD in the short term, they also introduce complexities with unknown implications.”
The bond market selloff has left the dollar standing tall and casting a shadow on the currency market.
The euro eased to $1.03095, remaining close to the two-year low it hit last week as investors remain worried the single currency may fall to the key $1 mark this year due to tariff uncertainties.
The pound was little changed at $1.2353 in early Asian trading, after hitting its weakest since April on Wednesday as British government bond yields hit multi-year highs.
“Clearly there is reason to watch the UK bond market intently, and the recent trend is certainly concerning,” said Chris Weston, head of research at Pepperstone.
“However, we can take some assurances that the Bank of England is more prepared this time around and has been reviewing the tools to step in should we see a dysfunctional market stemming from a liquidity event in the gilt market.”
Falls in both sterling and gilt prices were much sharper in September 2022 during the turmoil that followed former Prime Minister Liz Truss’ “mini-budget”.
That left the dollar index, which measures the U.S. currency against six other units, at 109.03, just shy of the two-year high it touched last week. The index gained 7% last year as traders adjusted expectations of a measured pace of U.S. rate cuts.