The Mexican peso weakened to 20.7 per U.S. dollar, after a brief recovery from its March 2022 low of 20.85 on December 31, pressured by Banxico's dovish tone, easing inflation, and a stronger U.S. dollar. Banxico's latest minutes hinted at larger rate cuts, aligning with inflation falling to a 46-month low of 4.21% annually in December, fueling expectations of a 50-basis-point cut in February. Simultaneously, robust U.S. jobs data reinforced expectations of a cautious Fed, with minimal rate cuts projected for 2025, supporting the dollar. Adding to the peso's woes, President-elect Donald Trump proposed declaring a national economic emergency to impose sweeping import tariffs, heightening concerns over Mexico's trade outlook.

Mexican Peso Slips on Strong USD, Banxico Dovish Signals

The Brazilian real weakened past 6.1 per USD, retreating from a near one-month high of 6.04 seen on January 9th, driven by rising domestic inflationary pressures, fiscal uncertainties, and a stronger U.S. dollar. Brazil's annual inflation rate for December 2024 held at 4.83%, slightly down from November's 4.87%, remaining above the target ceiling. This has fueled expectations of further interest rate hikes by the central bank, dampening investor sentiment amid ongoing fiscal concerns. Simultaneously, stronger-than-expected U.S. jobs data has reinforced the Federal Reserve's cautious approach to rate cuts, boosting the U.S. dollar. Additionally, fears of reduced Brazilian export demand have intensified following U.S. President-elect Trump's proposal for national economic emergency tariffs. This is particularly concerning for Brazil's commodity exporters, already facing declining demand from China, which further weakens demand for the real.

Brazilian Real Weakens Amid Inflation, Fiscal Uncertainty, and Strong Dollar

The Canadian dollar depreciated past 1.44 per USD, retreating after a brief rebound from the January 2016 low of 1.445 reached on January 3, as markets digested labor data signaling a softening labor market. While December figures revealed a robust net job gain of 91,000 and a decline in the unemployment rate to 6.7%, it remained the second-highest reading since September 2021, magnifying expectations for aggressive rate hikes by the Bank of Canada. In contrast, the US dollar remains supported by hawkish Federal Reserve commentary, elevated bond yields, and geopolitical tensions fueling safe-haven demand. The Fed's hawkish stance starkly contrasts with the BoC's dovish outlook, underscoring monetary policy divergence. Furthermore, rising crude oil prices, which often bolster the oil-linked Canadian dollar, have provided limited relief amid US trade policy uncertainties and reduced global risk appetite.

Canadian Dollar Weakens Amid Labor Concerns and Policy Divergence

The dollar index soared to 109.7 on Friday, the strongest level since late 2022, after a stronger-than-expected jobs report underscored the resilience of the US labor market, bolstering the Federal Reserve's cautious approach to further rate cuts. The US economy unexpectedly added 256K jobs in December, way above forecasts of 160K and the unemployment rate surprisingly dropped to 4.1% from 4.2% while wage growth slowed to 0.3% as expected. Traders expect the Fed to leave the fed funds rate steady until the second half of the year. Another reduction is now fully priced in October only versus July before. The dollar strengthened across the board but the biggest gains were seen against the British pound, the Swiss franc and the Euro.

Dollar Strengthens After NFP

USDNOK increased to a near 5-year high of 11.48. Over the past 4 weeks, US Dollar Norwegian Krone gained 2.91%, and in the last 12 months, it increased 11.28%.

Norwegian Krone Hits Near 5-year Low

The offshore yuan stabilized around 7.35 per dollar following the People’s Bank of China’s unexpected announcement to temporarily pause government bond purchases due to a supply shortage. This surprise move follows months of PBOC bond purchases to manage liquidity and warnings about potential bubbles in the bond market, where long-dated yields repeatedly hit record lows as investors shifted to safe assets in a weakening economy. The central bank stated that purchases would resume based on supply and demand conditions in the government bond market. On the economic front, data released Thursday showed China’s annual consumer prices edged down to 0.1% in December 2024 from 0.2% in the prior month, matching market expectations and marking the lowest inflation since March. Meanwhile, producer prices fell 2.3% year-on-year, a smaller decline than November’s 2.5%, and marking the 27th consecutive month of producer deflation but the softest contraction since August.

Offshore Yuan Stabilizes

The Japanese yen traded around 158.2 per dollar on Friday, staying near multi-month lows as uncertainty persists over the timing of interest rate hikes by the Bank of Japan. Japan’s Economy Minister Ryosei Akazawa stated that the economy is at a “critical stage” in overcoming the public’s deflationary mindset but provided no clear indication of when the BOJ may raise rates. On the data front, household spending in Japan declined by 0.4% year-on-year in November, while household income rose 0.7%. Externally, the yen faced additional pressure from a recent widening of the US-Japan yield differential, driven by hawkish signals from the US Federal Reserve. Moreover, investors are awaiting the release of the US jobs report on Friday, which could strengthen expectations for fewer Fed rate cuts this year.

Yen Holds Decline on BOJ Rate Hike Uncertainty

The Australian dollar held just below $0.62 on Friday, hovering near its lowest levels in over two years amid dovish bets on Reserve Bank of Australia monetary policy. ANZ Group, joining a growing number of banks forecasting an earlier rate cut, now expects the RBA to act in February rather than wait until May, citing signs of easing domestic inflation. Markets are now pricing in a 75% chance of a rate cut next month, a significant increase from 50% just days ago. Data released earlier this week showed that the country’s underlying inflation, measured by the trimmed mean, slowed to 3.2% in November from 3.5% in October. Externally, the Aussie also faced pressure from a strong US dollar as investors prepared for the December nonfarm payrolls report.

Australian Dollar Languishes Near 2-Year Low

The New Zealand dollar struggled around $0.559 on Friday, trading near two-year lows, weighed down by a strong US dollar ahead of the highly anticipated nonfarm payrolls report, which could shape the Federal Reserve’s monetary policy outlook. Minutes from the Fed’s December meeting indicated a more cautious approach to future rate reductions, amid concerns that President-elect Donald Trump's policies could prolong the fight against rising prices. In China, the latest inflation data remained weak, raising concerns about demand. This exerts some selling pressure on the Kiwi, given that China is New Zealand’s largest trading partner. Domestically, investors continue to expect the Reserve Bank of New Zealand will cut its 4.25% cash rate by an outsized 50bps in February and reduce it further to 3.0% by the end of the year, as the economy grapples with a deep recession. The New Zealand dollar is on track for its sixth consecutive weekly loss.

New Zealand Dollar Lingers Near 2-Year Lows

The South Korean won tumbled toward 1,460 per dollar, giving back gains from the previous session, pressured by ongoing dollar strength. The greenback was lifted by rising bond yields and expectations of a strong US jobs report, which may reinforce the outlook for fewer interest rate cuts by the Federal Reserve this year. The won faced additional pressure following the release of the latest Fed minutes, which signaled a potential slowdown in the pace of policy easing amid persistent inflation and uncertainty over Trump's policies. Domestically, the currency found support as South Korea's acting president pledged full efforts to stabilize the economy amid political crisis and committed to round-the-clock monitoring of financial markets for timely intervention. The government and ruling People Power Party also plan proactive measures to strengthen US trade ties and address potential impacts of incoming Trump administration’s policies.

South Korean Won Tumbles

The dollar index remained steady above 109 on Friday as investors braced for the December nonfarm payrolls report, seeking insights into the strength of the labor market. A strong jobs report could reinforce expectations for fewer interest rate cuts from the Federal Reserve this year. Minutes from the Fed’s December meeting, released earlier this week, suggested a potential slowdown in the pace of policy easing, driven by renewed concerns over inflation. Fed officials also expressed apprehension about the impact of potential changes in trade and immigration policy under the incoming Trump administration. Additionally, strong services activity and rising prices have intensified inflationary concerns. Meanwhile, Philadelphia Fed President Patrick Harker remarked on Thursday that he expects the Fed to eventually cut rates, but stressed that an immediate move is not necessary.

Dollar Steady Ahead of Key Jobs Report

The Brazilian real strengthened to around 6.07 per USD in January, marking a near one-month high as investors digested the latest economic data signaling resilient consumer demand and industrial activity, while the export demand outlook improved. Retail sales rose 4.7% in November while industrial production increased by 1.7% year-on-year. Meanwhile, the Chinese central bank's efforts to stabilize the yuan and boost liquidity could mitigate risks and support economic activity, potentially bolstering demand for Brazilian exports. This comes despite concerns over deflationary pressures and potential disruptions from proposed global tariff policies, such as those by President-elect Trump.

Brazilian Real Strengthens as Economic Data Points to Resilience

The Mexican peso weakened beyond 20.44 per U.S. dollar, after a brief recovery from its March 2022 low of 20.85 on December 31, as investors processed Banxico's latest minutes, inflation data, and concerns over U.S. tariffs. Banxico held rates steady, stressing inflationary pressures and the need for caution due to global and domestic uncertainties. However, December's inflation data, showing a 0.38% monthly rise and an annual rate of 4.21%, the lowest in 46 months, strengthened expectations for a 50-basis-point rate cut at Banxico’s February meeting. Peso losses were further exacerbated by global dollar strength, driven by expectations of a cautious Fed, with no rate cuts expected in January and a mere 25-basis-point cut anticipated for the first half of 2025. Moreover, fears mounted as President-elect Donald Trump proposed declaring a national economic emergency to justify sweeping import tariffs.

Mexican Peso Weakens Amid Inflation Data, USD Strength, and U.S. Tariff Concerns

The Russian rouble regained strength, reaching 101.7 per USD as trading resumed after the New Year holiday, recovering slightly from earlier lows. The currency had plunged beyond 115 per USD due to sanctions isolating Russia from global markets, cutting off access to hard currency and forcing the central bank to manage exchange rates since June. A weakening Chinese economy, Russia's key trade partner, reduced demand for exports, worsening foreign exchange inflows. To address revenue shortfalls from energy exports, Moscow eased capital controls, allowing the rouble to weaken and offset its budget deficit. Political pressures also led the central bank to pause its rate hikes in December, further straining the currency.

Russian Ruble Recovers

The British pound fell to $1.22566, its lowest since November 2023, as concerns over the UK’s fiscal and inflation outlook pressured investor sentiment. This drop came despite UK bond yields surging, with the 30-year yield at its highest since 1998 and the 10-year yield at levels unseen since 2008. Typically, higher yields boost a currency, but the decline points to capital flight driven by fears of persistent inflation and fiscal instability. Rising borrowing costs also strain Chancellor Rachel Reeves, whose fiscal flexibility is shrinking. In October, Reeves unveiled a budget including £142 billion in borrowing and a £74 billion annual spending increase, raising fiscal sustainability concerns. Inflation fears also persist, with CPI, wage growth, and inflation expectations rising. Traders now expect only two Bank of England rate cuts this year, down from over three predicted a month ago.

Sterling Lowest in Over 1 Year

GBPUSD decreased to a 13-month low of 1.23. Over the past 4 weeks, British Pound US Dollar lost 3.75%, and in the last 12 months, it decreased 3.5%.

British Pound Hits 13-month Low

The People’s Bank of China (PBoC) will auction CNY 60 billion of six-month bills in the Hong Kong market on January 15 to boost demand for the currency overseas, the Hong Kong Monetary Authority said in a statement. This issuance will be the largest on record since the central bank began conducting regular bill auctions in the city in 2018. The move aims to reduce the yuan's liquidity in the market, increase funding costs, and make it more expensive for traders to short the currency. Since Donald Trump won the US elections in November, the PBoC has actively used its daily reference rate to support sentiment in the yuan. Recent declines in the currency, due to concerns over a sluggish Chinese economy and the potential for US tariff hikes, have raised doubts among traders about the PBoC's commitment to defending the yuan. However, the central bank has demonstrated its resolve by stabilizing the yuan through daily fixings and pledging to prevent excessive exchange rate fluctuations.

PBoC to Hold Largest Ever Bill Auction in Hong Kong

The New Zealand dollar traded at $0.56 on Thursday, hovering near its lowest level in over two years, as the US dollar strengthened further amid rising bond yields, following hawkish Federal Reserve’s meeting minutes. The minutes from the Fed’s December policy meeting showed policymakers’ concern about inflation and the impact that President-elect Donald Trump’s policies could have on efforts to control it, indicating a more cautious approach to future rate reductions. In addition, the Kiwi dollar failed to capitalize on weak inflation figures from China, New Zealand's largest trading partner. Domestically, investors are still wagering the Reserve Bank of New Zealand will cut its 4.25% cash rate by an outsized 50bps in February and lower it further to 3.0% by the end of the year.

New Zealand Dollar Hovers Near 2-Year Lows

The offshore yuan edged higher to around 7.34 per dollar after the People's Bank of China intensified its efforts to support the currency with a record issuance of yuan-denominated bills in Hong Kong. On January 15, 2025, the central bank plans to issue CNY 60 billion worth of bills, the largest offering since the auction began in 2018. This move highlights the PBOC's commitment to curbing excessive depreciation and maintaining yuan stability, as the issuance will effectively absorb a significant amount of yuan from the market, elevate funding costs, and make it more expensive for traders to short the currency. On the economic front, China's annual consumer prices edged lower to 0.1% in December 2024, from 0.2% in the prior month, marking the lowest inflation rate since March. Meanwhile, producer prices fell 2.3% year-on-year, slowing from a 2.5% drop in November. Although this marked the 27th consecutive month of producer deflation, it was the softest contraction since August.

Offshore Yuan Gains as PBOC Intensifies Support

The South Korean won strengthened around 1,455 per dollar, recovering losses from the previous session. Sentiment improved as South Korea’s Industry Ministry pledged stronger ties with key sectors amid global trade uncertainties and the incoming Trump administration. Acting President Choi Sang-mok also vowed swift action with the central bank and regulators on Wednesday to address market volatility and emphasized communication with the new US administration. Externally, the won remained under pressure as traders assessed the latest US Fed minutes, signaling readiness to slow policy easing due to inflation and concerns over Trump's policies. Additionally, reports suggest Trump may declare a national economic emergency to justify broad tariffs on both allies and adversaries. Traders now await economic reports next week, including South Korea's import and export prices, unemployment rate, and the Bank of Korea's monetary policy decision, for insights on the country's economic outlook.

South Korean Won Recovers

The Japanese yen wallowed around 158 per dollar on Thursday, hovering near its lowest levels in about six months. The local currency continues to face headwinds from the strength of the dollar, which is bolstered by hawkish signals from the Federal Reserve and growing concerns over Trump’s tariff threats. Domestically, data revealed that real wages in Japan fell by 0.3% year-on-year in November, marking the fourth consecutive month of negative real wage growth. This has clouded the outlook for potential interest rate hikes by the Bank of Japan. Additionally, consumer sentiment in Japan weakened in December, further supporting dovish expectations for BOJ policy. Meanwhile, Finance Minister Katsunobu Kato reiterated earlier this week his warning against speculative, one-sided moves in the currency market, signaling the government’s willingness to intervene if excessive volatility continues.

Japanese Yen Remains Under Pressure

The Australian dollar struggled around $0.62 on Thursday, hovering near its lowest levels in over two years amid pressure from a hawkish Federal Reserve minutes and concerns about Trump’s tariff plans. The Aussie also got no relief from the latest inflation figures in China which pointed to growing deflationary risks. Domestically, investors digested data showing Australian retail sales rose by 0.8% in November amid a boost from Black Friday shopping, but missed market expectations for a 1% growth. Data earlier this week also revealed that the country’s underlying inflation, as measured by the trimmed mean, slowed to 3.2% in November from 3.5% in October. That raised expectations for an earlier rate cut from the Reserve Bank of Australia. Markets are currently divided on whether the RBA will act in February, but a quarter-point rate cut in April is fully priced in.

Australian Dollar Holds Near 2-Year Low

The dollar index remained steady around 109 on Thursday as investors continued to assess the outlook for Federal Reserve monetary policy. Minutes from the Fed’s December meeting revealed that officials were concerned about persistent inflation and the potential impact of trade and immigration policy changes under the incoming Trump administration. The central bank signaled that it may be nearing a point where it would be appropriate to slow the pace of policy easing. The dollar also received support from reports suggesting that Trump is considering declaring a national economic emergency to justify broad tariffs on both allies and adversaries. On the economic data front, the ADP report showed that private-sector employment fell to a four-month low in December, signaling a potential cooling in the labor market. Investors are now focused on Friday’s December payrolls report for further insights into the state of the economy.

Dollar Holds Steady as Fed Outlook Mulled

The dollar index held firm at 109 on Wednesday, retreating from an intraday high of 109.3, as traders weighed the FOMC minutes, potential policies of the incoming Trump administration, and fresh economic data. The minutes revealed Fed officials’ concerns about rising inflation risks and indicated they may soon slow the pace of policy easing. Early in the day, CNN reported that Donald Trump is considering declaring a national economic emergency to justify broad tariffs on both allies and adversaries. Meanwhile, comments from Fed Governor Waller provided some relief, as he expressed confidence in inflation cooling toward the 2% target, supporting expectations for further rate cuts. On the economic front, the ADP report showed private sector employment in December fell to a four-month low. Traders currently anticipate just one rate reduction by the Fed this year, likely in the second half.

Dollar Holds Gains but Eases from Intraday Highs

USDHKD increased to a 4-week high of 7.78. Over the past 4 weeks, US Dollar Hong Kong Dollar gained 0.07%, and in the last 12 months, it decreased 0.46%.

Hong Kong Dollar Hits 4-week Low

The Canadian dollar weakened toward 1.44 per USD, approaching January 2016 lows, as investors reacted to heightened trade concerns amid political uncertainty following Prime Minister Justin Trudeau's resignation. Reports surfaced that U.S. President-elect Donald Trump was considering declaring a national economic emergency to justify sweeping tariffs, further intensifying fears of reduced demand for Canadian exports. Trudeau’s departure, amid crises including his declining approval ratings and looming tariff threats, left Canada without a clear strategy to counter Trump's proposed tariffs, which could significantly impact Canadian exports. While no specific details about Canada were provided, the broader potential for new tariffs on critical imports has stirred investor caution.

Canadian Dollar Weakens Amid Tariff Concerns and Political Uncertainty

The Turkish lira was around 35.4 per USD, hitting a fresh record low, amid a stronger dollar, sluggish economic growth, and expectations of continued policy easing. Inflation in Turkey dropped more than anticipated in December 2024, reaching 44.4%, the lowest level in 18 months and marking the seventh consecutive monthly decline. Turkey's central bank cut its key lending rate by a surprising 250 basis points to 47.5% on December 26, down from the 50% level that had been in place since March.

Turkish Lira Weakens to New Record Low

The dollar index pared some of the early gains but remained in the green for a 2nd session at 109.2 on Wednesday, after CNN reported that Donald Trump is considering declaring a national economic emergency to provide legal justification for a large swath of universal tariffs on allies and adversaries. Meanwhile, comments from Fed Governor Waller offered investors some relief, after he expressed confidence that inflation would continue cooling toward the 2% target, supporting additional interest rate cuts this year. On the economic front, the ADP report revealed that private sector employment in December hit its lowest level in four months. The release of the FOMC minutes later in the day will be closely watched for additional clues on the Fed's moves. Traders are currently pricing in only one reduction in the fed funds rate this year, mostly likely in the second half of the year. The dollar strengthened across the board, with the British pound experiencing the most significant decline.

Dollar Pares Some Gains

The Brazilian real weakened past 6.14 per USD, retreating from an over two-week high of  6.1 seen January 7th as fears of reduced demand for Brazilian exports grew after U.S. President-elect Donald Trump proposed declaring a national economic emergency to justify sweeping import tariffs. These measures are particularly concerning for Brazil's commodity exporters, already facing a declining demand outlook due to weak Chinese demand. Additionally, the U.S. dollar strengthened as strong data dampened expectations of further Fed rate cuts. Domestically, political uncertainty over Brasília's fiscal policies and a 0.6% drop in November industrial production underscored fragile economic momentum. These challenges offset earlier optimism from robust federal revenues, which rose 11.21% in November, and solid private sector growth, with December's composite PMI at 51.5.

Brazilian Real Weakens Amid U.S. Tariff Fears

The British pound fell to $1.234, its lowest level since April 2024, as a stronger US dollar overshadowed elevated UK borrowing costs, which are near their highest in 27 years. Concerns over US trade policies added to pressure, with CNN reporting that President-elect Donald Trump may declare a national economic emergency to justify sweeping tariffs on allies and adversaries. Earlier suggestions of more moderate tariffs were dismissed by Trump, who confirmed no scaling back of his trade policy. Meanwhile, investors expect the Bank of England to cut rates by about 50 basis points this year, despite inflation remaining above the 2% target. Even as UK gilt yields surged, outpacing gains in US Treasury yields, the pound has struggled to find support against the robust dollar.

Sterling Slips to Over 8-Month Low

The euro slipped toward $1.0289, nearing a two-year low hit earlier this year, amid concerns over US trade policies and Eurozone inflation data. CNN reported that President-elect Donald Trump is considering declaring a national economic emergency to justify sweeping tariffs on allies and adversaries under the International Economic Emergency Powers Act. Earlier reports suggested milder measures, but Trump dismissed them, signaling no scaling back of his tariff plans. In the Eurozone, inflation rose to 2.4% in December from 2.2% in November, but analysts believe this won’t prevent the European Central Bank from cutting rates by 25 basis points this month. Markets are pricing a 96% likelihood of this cut, while expectations for further easing in 2025 have been scaled back to three quarter-point cuts, with a 70% chance of a fourth.

Euro Slips Toward 2-Year Low

The dollar index extended gains for a 2nd session to approach 109.3 on Wednesday, after CNN reported that President-elect Donald Trump is considering declaring a national economic emergency to provide legal justification for a large swath of universal tariffs on allies and adversaries. Early this week, reports suggested the incoming administration may consider more moderate tariff measures, but Trump dismissed such news and said his tariff policy would not be scaled back. The greenback gained further strength following yesterday's ISM Services PMI release, which indicated an acceleration in activity and rising prices. Additionally, higher-than-expected job openings tempered expectations for further interest rate cuts by the Fed. Traders are currently pricing in only one reduction in the fed funds rate this year, mostly likely in the second half of the year. The dollar strengthened across the board, with the British pound experiencing the most significant decline.

Dollar Approaches 2022-Highs

USDSEK increased to a 14-month high of 11.19. Over the past 4 weeks, US Dollar Swedish Krona gained 2.48%, and in the last 12 months, it increased 9.14%.

Swedish Krona Hits 14-month Low

GBPUSD decreased to a 37-week low of 1.24. Over the past 4 weeks, British Pound US Dollar lost 3%, and in the last 12 months, it decreased 2.65%.

British Pound Hits 37-week Low

The South Korean won tumbled toward 1,460 per dollar, snapping a five-session winning streak, as the US dollar strengthened after robust economic data pushed Treasury yields higher. Stronger-than-expected JOLTS job openings and ISM services data indicate the Federal Reserve may ease the pace of its rate-cutting cycle. Additionally, the won faced further pressure after the US President-elect dismissed reports suggesting that Trump's aides were considering a targeted approach on tariff policies focused on sectors critical to US national and economic security. Meanwhile, South Korea's acting President Choi Sang-mok, on Wednesday, vowed swift action with the central bank and regulators to address market volatility and emphasized communication with the incoming US administration. Traders are now looking ahead to the Bank of Korea's policy decision next week.

South Korean Won Snaps 5-Day Winning Streak

The offshore yuan slipped to around 7.34 per dollar, snapping a two-session winning streak, as a strengthening US dollar exerted pressure. The greenback's strength was supported by robust US economic data, which pushed Treasury yields higher and dampened expectations of Federal Reserve rate cuts later this year. At the same time, the yuan faced additional pressure after the President-elect dismissed reports suggesting that Trump's aides were considering a targeted approach focused on sectors critical to US national and economic security. Meanwhile, investors are turning their attention to China’s upcoming economic data releases later this week, including inflation and trade figures, which are expected to provide deeper insights into the health of the world’s second-largest economy.

Offshore Yuan Slips Amid Dollar Strength

The New Zealand dollar held its recent decline to around $0.563 on Wednesday, pressured by a stronger US dollar after upbeat economic data pushed Treasury yields higher. Stronger-than-expected JOLTS job openings and ISM services data suggested that the Federal Reserve might slow the pace of its current rate-cutting cycle. Meanwhile, investors are closely monitoring the potential impact of President-elect Donald Trump's tariff policies, particularly those targeting China. Such policies could put further pressure on the Kiwi dollar, as New Zealand relies heavily on China as a key export market. Domestically, traders continue to expect that the Reserve Bank of New Zealand will deliver an outsized 50 bps cut in February, given the economy is in a deeper contraction.

New Zealand Dollar Holds Decline

The Japanese yen weakened to around 158.2 per dollar on Wednesday, staying near its lowest levels in over five months and approaching the 160 per dollar threshold that prompted intervention six months ago. Earlier this week, Finance Minister Katsunobu Kato reiterated his warning against speculative, one-sided moves in the currency market, signaling the government’s readiness to intervene if excessive volatility persists. The yen has been under pressure amid growing uncertainty over the timing of interest rate hikes by the Bank of Japan. BOJ Governor Kazuo Ueda emphasized that any policy adjustments would depend on economic, price, and financial conditions, stressing the importance of sustainable wage growth. The central bank also highlighted the need for caution given both domestic and global uncertainties.

Japanese Yen Holds Near Intervention Levels

The Australian dollar remained largely unchanged at around $0.623, showing a muted market reaction to the latest inflation data. Australia’s Monthly CPI Indicator rose by 2.3% in November, an acceleration from the 2.1% increase in the previous two months and slightly above the forecast of 2.2%. However, underlying inflation, as measured by the trimmed mean, slowed to 3.2% in November from 3.5% in October, which raised expectations for an earlier rate cut. Markets are currently divided on whether the Reserve Bank of Australia will act in February, but a quarter-point rate cut in April is fully priced in. Investors are now awaiting the quarterly CPI report later this month for confirmation that inflation is genuinely easing. Externally, the Aussie faced pressure from a rebound in the greenback, driven by strong US services data.

Australian Dollar Muted After Inflation Data

The South Korean won strengthened past 1,450 per dollar, rallying for the sixth consecutive session and hitting its highest level in nearly three weeks. Sentiment was lifted after South Korea's acting President Choi Sang-mok, on Wednesday, vowed swift action with the central bank and regulators to address market volatility and emphasized communication with the incoming US administration. Meanwhile, latest data showed South Korea posted a $9.3 billion current account surplus in November 2024, marking seven straight months of surpluses, driven by strong semiconductor exports. Traders are now looking ahead to the Bank of Korea's policy decision next week. The central bank surprised markets with a 25 bps rate cut in November, bringing the benchmark interest rate to 3%. In his New Year’s address, Governor Rhee Chang-yong emphasized the need for monetary policy flexibility amid growing political and economic uncertainties.

SK Won Extends Gains for 6th Session

The dollar index held its recent advance to above 108.5 on Wednesday, supported by higher Treasury yields as strong US economic data diminished the likelihood of further Federal Reserve interest rate cuts. Growth in the US services sector accelerated in December, boosting business activity and pushing prices to their highest levels since early 2023. Job openings also rose by 259,000 to 8.098 million in November, surpassing expectations and reaching a six-month high. Investors are now focused on Friday’s monthly jobs report, one of the last major data releases before the Fed’s upcoming monetary policy decision. Currently, markets are pricing in less than 50 basis points of total easing this year. The dollar strengthened across the board, with the yen experiencing the most significant decline.

Dollar Firms Up on Strong US Data

USDZMW increased to an all-time high of 28.24. Over the past 4 weeks, Zambia Kwacha gained 2.23%, and in the last 12 months, it increased 8.14%.

Zambia Kwacha Hits All-time Low

The Brazilian real strengthened past 6.08 per USD, rebounding further from the record low of 6.29 on December 18th, driven by investor optimism surrounding Brazil’s fiscal outlook and inflation trends. Federal revenues rose 11.21% in November 2024, bolstered by higher taxes on fuel, imports, and corporate income, enhancing fiscal confidence. From January to November, revenues totaled R$2.391 trillion, 9.82% higher than the same period in 2023, after adjusting for inflation. Additionally, strong foreign trade performance, with a $4.8 billion surplus in December, exceeded expectations and further supported the real. Meanwhile, expectations of tighter monetary policy, reflected in the central bank’s latest Focus Report projecting an interest rate hike to 15% in 2025, have also increased the appeal of Brazilian assets. Elsewhere, Brazil's composite PMI revealed solid private sector growth at 51.5 in December, extending a 15-month expansion streak and signaling resilience in the economy.

Brazilian Real at 6.07

The Indian rupee weakened to 85.8 per USD, nearing its record low of almost 86 hit in early January, weighed down by a stronger dollar. The currency has been under pressure in recent weeks due to a combination of domestic and international factors, despite efforts by the Reserve Bank of India to intervene in the foreign exchange market. Contributing factors include sluggish economic growth, persistent foreign investor outflows from Indian equities, and concerns about US economic policies under the Trump administration. Meanwhile, India's GDP is projected to grow by 6.4% in the 2024-25 financial year, down from 8.2% in 2023-24, according to the Ministry of Statistics' first advance estimates. This projection is below the RBI's 6.6% forecast for the current fiscal year and may represent the weakest growth in four years. Domestic inflation eased to 5.5% in November, within the RBI's tolerance range, supporting expectations of a rate cut by Q1 2025.

Indian Rupee Nears Record Lows

The Zambian kwacha weakened to a historic low, crossing 28 against the US dollar, driven by a severe drought and worsening power crisis. Zambia is grappling with severe power blackouts as an El Niño-induced drought has drastically reduced electricity generation from the Zambezi River and the massive hydro-powered Kariba Dam. The country relies heavily on water reservoirs, such as lakes and rivers, for 84% of its electricity, with only 13% coming from coal. Despite a slight rise in water levels, the Kariba Dam remains at a critically low 2.6% of usable storage, forcing Zambia's mining companies to rely on costly electricity imports. Households and businesses across the country are enduring day-long power cuts, leaving many dependent on electricity generators fueled by imported diesel, further straining the economy. The kwacha experienced significant volatility throughout 2024 due to central bank interventions to stabilize the currency and an IMF support package.

Zambian Kwacha Plunges to Record Low

The dollar index rose to 108.5 on Tuesday, recovering from two days of declines, as economic data suggested the Federal Reserve might pause rate cuts despite rising inflation. Growth in the US services sector accelerated in December, boosting business activity and pushing prices to their highest levels since early 2023. Job openings also increased by 259,000 to 8.098 million in November, exceeding expectations and marking a six-month high. Meanwhile, speculation about the Trump administration adopting a less aggressive tariff strategy was tempered after Trump denied such plans on Truth Social.

DXY Rebounds from 2-Day Decline

The euro rose to $1.0422, supported by stronger-than-expected inflation data in the Euro Area. Annual inflation accelerated to 2.4% in December, its highest level since July, up from 2.2% in November, aligning with market expectations. This marked the third consecutive monthly increase, bolstering the view that the European Central Bank will take a cautious approach to cutting interest rates. Higher-than-expected inflation in Germany and Spain reinforced this sentiment, even as France and Italy reported softer inflation figures. Meanwhile, market focus remained on President-elect Trump’s tariff plans, as he dismissed claims that his administration might adopt more moderate trade measures.

Euro Climbs Further after Inflation Data

The Swiss Franc hovered around 0.90 per USD, its highest in over a week, as the dollar weakened on hopes that President-elect Donald Trump would impose less aggressive tariffs. Meanwhile, Swiss inflation fell again in December, fueling expectations for more interest rate cuts by the Swiss National Bank this year, potentially starting with a 25 bps reduction in March. Consumer price inflation eased to 0.6% in December, down from 0.7% in November, in line with forecasts, marking the fourth straight month of inflation below 1%. The SNB expects inflation to slow to 0.3% in 2025 and 0.8% in 2026.

Swiss Franc at Over 1-Week High

The Japanese yen fell past 158 per dollar on Tuesday, marking its lowest point in over five months and prompting renewed verbal intervention from a top Japanese official. Finance Minister Katsunobu Kato reiterated his warning against speculative, one-sided moves in the currency, signaling the government's readiness to take action if excessive volatility persists. These comments came as the yen weakened toward the 160 per dollar level, which had previously triggered intervention six months ago. The yen has been under pressure recently amid growing uncertainty regarding the timing of interest rate hikes by the Bank of Japan. BOJ Governor Kazuo Ueda emphasized that any policy adjustments would depend on economic, price, and financial conditions, highlighting the importance of sustainable wage growth. The central bank also stressed the need for caution given both domestic and global uncertainties.

Yen Weakness Triggers Fresh Verbal Intervention

The offshore yuan held steady around 7.35 per dollar, hovering near 16-month lows, as traders assessed speculation about a potentially less aggressive tariff policy from the incoming Trump administration. A report on Monday suggested that Trump's aides were considering a more targeted approach, focusing on sectors critical to U.S. national or economic security. However, Trump dismissed the report in a post on his Truth Social platform. Domestically, the yuan stayed under pressure, dipping below 7.3 per dollar last week, signaling potential further decline as Beijing steps up economic support and plans rate cuts this year to stabilize the market. Traders are now eyeing key economic data next week, including inflation, producer prices, and the balance of trade.

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