Dollar Trades Near Recent Lows as Markets Await U.S. Data and Central Bank Decisions

Key Moments

The euro edged up 0.1% to $1.1761 after touching $1.1769, its strongest level since September 24.
Meanwhile, the dollar slipped 0.25% to 154.85 yen as investors priced in a Bank of Japan rate hike and focused on policy guidance.
Fed funds futures implied a 75.6% probability that the Federal Reserve would leave rates unchanged at its January 28 meeting.

Dollar Softens Against Euro and Yen Ahead of U.S. Data

The U.S. dollar traded near multi-week lows against the euro and yen on Tuesday.
Investors awaited economic releases that could reshape expectations for the Federal Reserve’s policy path.

Monetary policy remains central to market attention. The ECB and the Bank of England meet on Thursday,
while the BoJ announces its decision on Friday.

Euro Supported by Resilient Data and ECB Rate Expectations

Recent indicators showed the eurozone economy has held up despite U.S. import tariffs.
This reinforces the ECB’s view that rates should remain elevated longer and supports the single currency.

Additionally, the ECB has not opposed market positioning expecting rate hikes in late 2026 or early 2027.
Analysts say this could be seen as implicit acceptance, leaving room for a more hawkish tone at this week’s meeting.

The euro rose 0.1% to $1.1761, after touching $1.1769 on Monday, the highest since September 24.

Currency Pair	Latest Level	Move on Day	Recent High/Low Reference
EUR/USD	1.1761	+0.1%	Hit 1.1769, highest since September 24
USD/JPY	154.85	-0.25%	Dipped to 154.34 in early December, lowest since November 14
Dollar Index	98.20	Slightly lower	Near lowest since October 17
Offshore CNY/USD	7.0371	+0.1% (yuan firmer)	Strongest since October 3, 2024
AUD/USD	0.6642	-0.05%	Little changed on the session
NZD/USD	0.5778	-0.1%	Fell as rate hike bets were trimmed

BoJ Outlook: Markets Price In Hike

Traders largely expect the BoJ to raise rates. However, attention focuses on potential additional tightening before spring wage negotiations.

Business sentiment among major Japanese manufacturers rose to a four-year high in the three months to December.
This reinforces expectations for further policy normalization. Some analysts caution that upcoming BoJ communication might not sustain yen support.

Japan plans new tax incentives to encourage investment, even as markets watch rising debt levels.
As a result, the dollar declined 0.25% to 154.85 yen ahead of the BoJ decision.
Earlier in December, the dollar fell to 154.34 yen, its weakest since November 14.

Morgan Stanley flagged potential downside for the dollar if U.S. labor market indicators continue to soften.

Fed Path Under Scrutiny as Data Looms

Fed funds futures suggested a 75.6% chance that the Fed will leave rates unchanged at its January 28 meeting, steady from a day earlier.

“Consensus sees November payrolls slightly below trend at plus 50k and unemployment at 4.4–4.5%,” said Stefan Koopman, senior macro strategist at Rabobank.
“This would temper labor concerns while keeping optionality for cuts.”

“A weaker print could spur risk-off moves: equities lower, a softer dollar, and flows into cash and Treasuries,” he added.

The dollar index traded at 98.20, slightly lower, near its weakest since October 17. Analysts differ on how upcoming labor data will impact markets.

Yuan Climbs; Antipodean Currencies Ease

The offshore Chinese yuan strengthened 0.1% to 7.0371 per dollar, its firmest since October 3, 2024.
“We view this as a deliberate move to guide RMB appreciation while maintaining market order,” said Christopher Wong, OCBC.

The Australian dollar slipped 0.05% to $0.6642, showing little reaction after a private survey indicated weaker consumer sentiment.
Meanwhile, the New Zealand dollar eased 0.1% to $0.5778 as investors scaled back rate hike expectations and absorbed a mid-year budget update.

Crypto Markets Choppy After Earlier Pullback

Digital asset prices swung between gains and losses, following Monday’s decline that triggered a broad cryptocurrency pullback.