Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
US Dollar extends decline as yields back off 5%
The greenback declined as Treasury yields retreated from key psychological levels, with the 30-year yield touching but failing to hold above 5%.
The USD index fell 0.7% to 109.20 as the heavy dollar-buying continued to unwind.
The euro was a notable gainer, with EUR/USD climbing above 1.03 after France’s budget plan was finalized, though overall market participation remained limited.
The yen saw net buying interest despite USD/JPY holding around 158.00, while SGD gains mere 0.2%.
Major equity indices recovered from yield-driven dips, with the S&P 500 closing at 5842 while the Nasdaq ended at 19044.
Looking ahead, the UK CPI release will be key focal point for markets.
UK inflation expected to edge lower to 2.5%
Today, the UK CPI will be released.
We predict that headline CPI inflation rate will slightly decline from 2.6% in November to 2.5% in December.
However, we anticipate that this decline will only last temporarily, and that base effects will play a major role in January’s notable increase in headline inflation, which reached over 3%.
For the majority of 2025, headline CPI inflation is probably going to stay around 3%, in part because of several government initiatives.
Medium-term bears maintain control below the crucial resistance level cluster of 1.2486–1.2609, even if an oversold rebound occurs.
Bank of Korea to maintain dovish stance amid tensions
Tomorrow is the Bank of Korea’s policy meeting.
Due to the lower KRW and increased political tensions, we anticipate the BOK to give a dovish hold despite growing downside risk to the economic forecast.
Rate cuts might raise volatility, which seems to be under control thanks to the NPS’s implementation of an FX hedging strategy, because the BOK policy meeting is set close to President-elect Trump’s inauguration (20 January).
More significantly, rate cuts may be less successful in lowering short-term downside risks to the GDP outlook if political impasse worsens.
Therefore, in order to gain a better understanding of the detrimental economic effects of the political shock, the BOK will probably halt and await incoming economic data while the government frontloads fiscal expenditure.
In order to make the January meeting appear dovish, we also anticipate that the policy statement will emphasize the mounting downside risks and that additional MPC members will signal rate cuts in the upcoming months.
Kiwi crosses corrected from its recent highs
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 13 – 18 January
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
