(Reuters) -The U.S. dollar edged up on Tuesday to within striking distance of its one-year high as investors closely watch U.S. President-elect Donald Trump’s search for a Treasury secretary, which is widening after stalling over the weekend.
Among the names now being considered are Apollo Global Management (NYSE:APO) Chief Executive Marc Rowan and former Federal Reserve Governor Kevin Warsh.
Analysts have been pointing out that Warsh is seen as less protectionist than the other candidates. The perceived growing likelihood that he might land the job may had been a significant factor in the intra-day Treasury rally on Monday, they say.
U.S. Treasury yields edged lower on Monday as traders digested a still-strong U.S. economy and the likely policies of a Trump administration.
“The relevance of the pick for financial markets will probably be how the U.S. Treasury market reacts,” said Chris Turner, head of forex strategy at ING.
Given the large budget deficit “a candidate that will offer less of a counterweight to some of President-elect Trump’s plans could see the long end of the U.S. Treasury market sell off and perhaps even soften the dollar too,” he said.
Markets expect Trump to cut taxes, which could boost the budget deficit.
The U.S. dollar index, which measures its value against a basket of other major currencies – rose 0.1% to 106.33, after falling 0.4% in the previous session. It hit 107.07 last week, its highest level since early-Nov. 2023.
The dollar has risen more than 2% for the month thus far, buoyed by reduced expectations of the extent of Federal Reserve rate cuts and the view that Trump will usher inflationary policies.
Investors are also waiting for the euro area’s negotiated wage figures due on Wednesday and regional purchasing manager surveys on Friday, which could be crucial for the European Central Bank decision in December.
Markets are fully pricing a 25 basis-point rate cut and a bit less than a 20% chance of a 50 bps move, which, according to some analysts, is still on the table.
On Monday, two top ECB policymakers signalled that they were more worried about the damage that expected new U.S. trade tariffs would do to growth than any impact on inflation.
“(Bundesbank President Joachim ) Nagel’s comments reiterate the risk that there will be pressure on the ECB to not just react to supply shocks, which drive prices up but growth down, by tightening policy but also pre-emptively keep policy tighter to ensure against the risk of such price shocks,” said Christian Schulz, deputy chief European economist at Citi.
The euro dropped 0.2% to $1.0578. It hit $1.0496 last week, its lowest since early October 2023.
The yen last edged 0.30% lower to 154.26 per dollar, after falling in the previous session as the Bank of Japan Governor Kazuo Ueda offered no hints on whether a rate hike could come in December.
“Recent (yen) weakness had many market participants expecting Ueda to sound hawkish, but in the end the Governor stuck to his recent narrative,” said Rodrigo Catril, senior FX strategist at National Australia Bank (OTC:NABZY).
“We think the economy and price pressures are making a strong case for a hike in December, but much will depend on whether there is any political push back, given the LDP is looking to regain public support, after a poor show at the recent Lower House election.”
The yen has fallen some 7% since October and had weakened past the 156 per dollar level for the first time since July last week, putting traders on alert for any intervention from Japanese authorities to shore up the currency.
Elsewhere, the Australian dollar clung to its gains from the previous session and last traded at $0.6515.
The Reserve Bank of Australia offered indirect support by reiterating that interest rates were unlikely to be cut soon, and might even have to be raised under some scenarios.
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