Dollar keeps in control to start the new week

The dollar is once again keeping firmer in trading today, mostly advancing against the euro and pound. It is down against the yen but keeping steadier across the board elsewhere. GBP/USD is the biggest loser, down 0.7% to 1.2120 levels at the moment. The pair is continuing to stay poised in chasing further downside with sellers taking aim at the 1.2000 level.

This continues the post-NFP momentum for the dollar, especially against the euro and pound. EUR/USD briefly dipped below 1.0200 earlier to a low of 1.0176 but is now back up to 1.0203 – still down 0.4% though.

USD/JPY is the other notable mover but it is moving lower with the pair down 0.3% to 157.25 currently. The high earlier nearly touched 158.00 but it was mostly earlier on in Asia. The tricky part for USD/JPY now is striking a balance between higher bond yields and a potential rate hike by the BOJ later this month.

The former is seeing 10-year Treasury yields up again today to 4.796% currently. That is the highest for yields since November 2023.

As for the BOJ, traders are still stuck with a coin flip decision on the January decision. The current pricing shows ~51% odds of no change and ~49% odds of a 25 bps rate hike. That is not too much changed since the end of December here.

But in essence, it reflects the view that traders are still potentially seeing the risk of a BOJ “surprise” next week. That being said, expect there to be “reports” i.e. BOJ leaks ahead of the decision, which will guide markets to price in sentiment accordingly. That can be any time between now and early next week.

This article was written by Justin Low at www.forexlive.com.