Dollar up as US 10-yr yield hits 8-1/2 month high on tariff report
4:21 pm Wednesday, January 08th, 2025
By Chuck Mikolajczak
NEW YORK (Reuters) -The U.S. dollar rose for a second straight session on Wednesday as U.S. bond yields continued their recent advance, following a report that President-elect Donald Trump was contemplating the use of emergency measures to allow for a new tariff program.
The yield on the benchmark 10-year U.S. Treasury note hit 4.73%, its highest level since April 25, after CNN reported Trump is considering declaring a national economic emergency in order to provide legal footing for a series of universal tariffs on allies and adversaries.
Investors are anticipating Trump policies such as deregulation and lower taxes will boost economic growth, but there are concerns it, along with yet to be confirmed tariff actions, could cause a reacceleration in inflation.
On Monday, the Washington Post said Trump was looking at more nuanced tariffs, which he later denied.
“This feeds into this whole theme of a strong dollar and even with the disappointing ADP (employment data), the dollar is still firmer on the day,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
“What it means is people ought not to resist this, it is a genuine move that hasn’t exhausted yet.”
Earlier data on the U.S. labor market was conflicting, as the ADP National Employment Report showed U.S. private payrolls growth slowed sharply in December to 122,000, from 146,000 in the prior month. Economists polled by Reuters had forecast a gain of 140,000.
However, weekly initial jobless claims fell to an 11-month low of 201,000 and below the estimate of 218,000 in a Reuters poll of economists.
The dollar index, which measures the greenback against a basket of currencies, rose 0.28% to 109.00, after hitting a more than 2-year high of 109.54 last week, with the euro down 0.2% at $1.0318.
The data was released ahead of Friday’s key monthly employment report from the U.S. government.
Markets are now pricing in just 39 basis points of easing from the Federal Reserve this year, with a first interest rate cut likely to happen in June.
Fed Governor Christopher Waller said on Wednesday that inflation should continue to fall in 2025 and allow the U.S. central bank to further reduce interest rates, though at an uncertain pace.
The greenback held on to gains after minutes from the Fed’s Dec. 17-18 meeting, which showed policymakers agreed inflation was likely to continue slowing this year but also saw a rising risk that price pressures could remains sticky as they grappled with the potential effect of Trump’s policies.
Sterling weakened 0.87% to $1.2364 after falling to $1.2321, its lowest level since April 22 and the second-weakest of the year even as it occurred alongside a sharp selloff in British stocks and government bonds, with the 10-year gilt yield hitting a 16-1/2-year high.
Against the yen, the dollar strengthened 0.25% to 158.41 and moved closer to the 160 level that has sparked Japanese authorities to intervene to support the currency.
Japan’s consumer sentiment deteriorated in December, a government survey showed, casting doubt on the Bank of Japan’s view that solid household spending will buttress the economy and justify a further rise in interest rates.
(Reporting by Chuck Mikolajczak; Editing by Paul Simao and Chizu Nomiyama)
