The US Dollar

The US dollar experienced a decline against its major trading partners on Monday as the market returned to normal conditions after the holiday season. Analysts predict that the dollar could lose some momentum in the coming days as liquidity returns and a slight adjustment in interest rates takes place.

US Dollar Declines against Trading Partners as Rally Loses Steam

Francesco Pesole, an analyst at ING, stated that the dollar may see some softening this week as “normal market conditions allow for some reconciliation with slightly lower rates.” However, he cautioned that the dollar’s correction is likely to be short-lived, given the underlying strength of the Federal Reserve’s hawkish stance.

Federal Reserve Governor Adriana Kugler reaffirmed on Saturday that the central bank’s efforts to combat inflation are far from over. Additionally, San Francisco Fed President Mary Daly indicated that inflation remains “uncomfortably” above target, signalling that the Fed may adopt a cautious approach to rate reductions in 2025.

The currency markets saw moderate fluctuations as the trading week began. The euro strengthened against the dollar, with the USDEUR rising to 1.0422, up from 1.0307 at Friday’s close. Meanwhile, the GBPUSD also saw a rise, climbing to 1.2542 from 1.2425.

In the Eurozone, services PMI data revealed better-than-expected growth in December, while investor confidence dipped slightly in January, indicating some uncertainty. The European Central Bank’s next meeting is scheduled for January 30.

The Japanese yen weakened slightly, with USDJPY falling to 157.0751, down from 157.3612. Japan’s services PMI showed modest expansion, but it fell short of expectations. The Bank of Japan’s next meeting will take place on January 23-24.

Meanwhile, the Canadian dollar weakened against the greenback, with USDCAD falling to 1.4314 from 1.4444. The upcoming Bank of Canada meeting is scheduled for January 29, though there were no major Canadian data releases on Monday.

Despite the short-term correction, analysts suggest that the dollar will likely remain strong due to the looming political events in the US, including Donald Trump’s inauguration. January and February are traditionally strong months for the dollar, and the political environment may further support demand for the currency.

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