The Japanese yen edged up slightly from five-month lows yesterday and the dollar held onto its dominant position, as global currencies headed to the end of a year characterised by diverging central bank outlooks.
The dollar index, which measures the greenback against a basket of six other major currencies, was down 0.1 per cent at 107.86 on the day. It has kept around the 108-level after touching a two-year peak of 108.54 on December 20.
Underpinned by rising US yields and expectations for US rates to stay higher for longer, the dollar index is up 2pc in December, bringing year-to-date gains to 6.35pc.
“Despite paid forecasters almost universally calling for a weaker US dollar in 2024, the greenback looks set to close the year higher against all major currencies with the buck reigning supreme,” Chris Weston, head of research at Pepperstone, said.
The dollar has gained in each of the last three months, with traders expecting President-elect Donald Trump’s policies of looser regulation, tax cuts, tariff hikes and tighter immigration to be both pro-growth and inflationary, which will likely keep US yields elevated.
US 10-year Treasury yields hit a more than seven-month high last week. The yield hovered close to that mark yesterday, at 4.593pc.
The yen was slowly ticking up from recent five-month lows, and strengthened 0.16pc to 157.55 per dollar on Monday, with the risk of Japanese intervention preventing another test of the 160 level last seen in July.
The dollar has gained 10 yen since December 3, with much of the decline in the Japanese currency coming after the Federal Reserve’s December 18 message of caution around future rate cuts.
That view has weighed heavily on the yen, which hit its weakest level since July 17 last week at 158.09 per dollar and has shed more than 10pc so far this year, on track for a fourth yearly decline against the greenback.
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