The US dollar weakened again on Tuesday, extending its decline for two consecutive days. Improving risk sentiment ahead of the year-end period was the main factor driving the dollar's weakness. The Bloomberg Dollar Spot Index fell 0.1%, after plunging 0.4% on Monday. Investors began to show optimism ahead of the year-end holidays, which impacted major currency movements.
The yen strengthened significantly, breaking through 157 against the dollar, supporting the previously depressed Japanese currency. USD/JPY fell 0.3% to 156.58 after Japanese Finance Minister Satsuki Katayama stated that Japan has "full freedom" to take decisive action against currency movements inconsistent with fundamentals.
Rodrigo Catril, currency strategist at National Australia Bank, said that the positive sentiment from the previous New York session continued into the Asia-Pacific trading session. "The trading environment leading up to Christmas is relatively light, but currently, the path of least resistance is for extended dollar weakness," he said.
Meanwhile, the Australian dollar (Australia) received a small boost after the Reserve Bank of Australia (RBA) minutes indicated concerns about rising inflation risks. AUD/USD held steady at 0.6659, with resistance levels at 0.6686-0.6707, which encompass the highs recorded on September 17 and December 10.
On the bond market front, the 2-year Treasury yield fell 1 basis point to 3.50%, while the 10-year Treasury yield also dipped 1 basis point to 4.16%, reflecting a more dovish market outlook on US monetary policy.
Despite the small dollar decline, EUR/USD held steady at 1.1767, while GBP/USD edged up 0.1% to 1.3473, supporting the belief that market conditions remain positive for most major currencies.
With market sentiment favoring risk, the US dollar is expected to remain under pressure in the coming days. If this trend continues, investors will likely continue to shift their attention to more stable currencies, including the yen and the Australian dollar, which benefit from more optimistic domestic policies. (asd)
Source: Bloomberg.com
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