The US Dollar remained near multi-week lows against the Euro and Yen on Tuesday as investors awaited upcoming US economic data that could influence expectations for the Federal Reserve’s policy direction.
This week, central bank decisions are under close watch, with the European Central Bank (ECB) and Bank of England meeting on Thursday, followed by the Bank of Japan’s policy announcement on Friday.
Economic data indicating that the eurozone economy remains resilient despite US import tariffs has reinforced the ECB’s higher-for-longer interest rate approach and strengthened the Euro.
At the same time, the ECB’s lack of pushback against market expectations for rate hikes in late 2026 or early 2027 could be seen as implicit approval, leaving the possibility of a hawkish surprise at this week’s policy meeting, Reuters reports.
The Euro rose 0.1% to $1.1761, after reaching $1.1769 on Monday, marking its highest level since 24th September.
Elsewhere, a rate hike from the Bank of Japan (BoJ) is largely expected, but any indication that policymakers might tighten further before spring wage talks would signal a hawkish shift.
Business sentiment among major Japanese manufacturers reached a four-year high in the three months to December, reinforcing expectations of additional tightening. However, analysts caution that the BoJ’s policy update may not strengthen the Yen, given ongoing fiscal concerns.
Japan’s government intends to roll out additional tax incentives to encourage investment, even as financial markets remain wary of the country’s rising debt.
Ahead of the BoJ decision, the Dollar fell 0.25% to 154.85 Yen, with renewed market volatility driving investors toward safe-haven assets. Earlier in December, the Dollar had touched 154.34, its lowest level since 14th November.
Morgan Stanley maintained a neutral outlook on the Dollar/Yen but noted potential downside risk if US labour market data continues to weaken.
In addition, according to the CME Group’s FedWatch tool, Fed funds futures currently price a 75.6% probability that the Federal Reserve will hold rates at its next meeting on 28th January, unchanged from the previous day.
The Dollar index, which tracks the greenback against a basket of six major peers, was trading at 98.20, slightly lower after earlier nearing its lowest level since 17th October.