Dollar Near Two-Year Peak as Yuan Faces Pressure

The dollar remained close to a two-year high on Monday as traders anticipated a series of U.S. economic data releases, including December's nonfarm payrolls report, to provide further guidance on the Federal Reserve's interest rate outlook. 

Attention was also on the Chinese yuan, which weakened beyond the key level of 7.3 per dollar in the onshore market for the first time in 14 months on Friday. This followed the People's Bank of China (PBOC) ceasing its defense of that level after a period of aggressive intervention. The offshore yuan was slightly lower at 7.3630 per dollar, just before the onshore market opened.

Ray Attrill, head of FX strategy at National Australia Bank (NAB), noted that the PBOC's decision to stop defending the 7.30 mark has sparked greater attention to future actions from the central bank regarding the yuan's exchange rate. He suggested that this could influence broader Asian currencies, including the Australian and New Zealand dollars, which were largely unaffected by the yuan's move and showed modest gains.

In the broader currency market, all eyes were on the upcoming U.S. jobs report for insights into the state of the U.S. economy. Fed officials were also expected to reinforce the message that the fight against inflation is far from over.

The dollar continued to gain strength from expectations of fewer interest rate cuts by the Fed this year, with its recent rise to a two-year high pushing the euro to its weakest point in over two years. The euro was down 0.13% at $1.0296, while the dollar index increased by 0.09% to 109.06.

The pound declined 0.03% to $1.24195, and the yen weakened 0.3% to 157.765 per dollar.

Further support for the dollar came from the uncertainty surrounding U.S. President-elect Donald Trump's inauguration on January 20 and his potential policies, including import tariffs, tax cuts, and immigration restrictions. 

Attrill pointed out that the uncertainty over the speed and impact of Trump's policy actions left little reason to bet against the dollar's continued strength.

Paraphrasing text from "Reuters" all rights reserved by the original author.