The US Dollar was heading for its biggest weekly decline in four months on Thursday, as trading volumes thinned ahead of the US Thanksgiving holiday, prompting investors to consider a year ahead in which the US may stand out for cutting rates.
Whereas the Yen rose 0.2% to 156.11 per Dollar in Asian trading, supported by a more hawkish stance from Bank of Japan officials.
With US markets closed for Thanksgiving, thin liquidity is magnifying currency market movements.
The Euro slipped 0.05% to $1.1590, after reaching a 1½-week high of $1.1613 earlier in the session, Reuters reports.
Investors are closely monitoring potential Ukraine peace negotiations, which could boost the single currency.
US envoy Steve Witkoff is scheduled to visit Moscow next week for talks with Russian officials, though a senior Russian diplomat stated on Wednesday that Russia is unlikely to make major concessions.
Elsewhere, the New Zealand Dollar surged to a three-week high of $0.5728, marking a roughly 2% gain since the Reserve Bank of New Zealand signalled a hawkish shift the previous day.
Although the central bank cut rates on Wednesday, it noted that a pause had been considered and indicated that the easing cycle is likely over.
Strong economic data on Thursday further fuelled expectations for higher rates, with markets pricing in a hike by December 2026.
This stands in stark contrast to the US, where more than 90 basis points of rate cuts are anticipated by the end of next year.
New data showed New Zealand’s retail sales increased in Q3, while business confidence surged to a one-year high.
Furthermore, the Australian Dollar has strengthened following a higher-than-expected inflation report on Wednesday, reinforcing expectations that the country’s easing cycle is over.
With Australia’s 3-year and 10-year yields at 3.86% and 4.5%, the highest in the G10, analysts say the currency appears undervalued.
The Aussie, trading at $0.6536 at the time of writing, sits near the midpoint of an 18-month trading range. It has recently moved more in line with China’s Yuan than with interest rates, suggesting potential for further gains as the Yuan has risen sharply in recent sessions.
On Thursday, China’s central bank intervened through its fixing mechanism, keeping the Yuan steady at 7.08 per Dollar.
In addition, Sterling edged up to $1.3265, its strongest level since late October, and is set for its biggest weekly gain since August as Britain’s Budget eased worries over public finances.
The US Dollar index rose 0.1% to 99.62, having fallen from a six-month high last week and now on track for its largest weekly decline since July.