Dollar Dips Before CPI, Euro Pending ECB Meeting

The U.S. dollar eased slightly on Monday following last week’s jobs report, which signaled another Federal Reserve rate cut at the end of this month. However, losses were minimal amid renewed uncertainty in the Middle East. In early trade, the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 105.550.

Dollar Rally Appears to Be Showing Signs of Fatigue

The dollar rally that followed Donald Trump’s victory in the U.S. presidential election is beginning to show signs of fatigue as the year draws to a close. The Federal Reserve is widely expected to cut interest rates again next week, following a rebound in job growth in November. However, the dollar index has declined less than 0.5% in the past week, retaining support as a safe-haven currency, particularly in light of rising geopolitical tensions.

Rebel forces in Syria have reportedly overthrown President Bashar al-Assad, seizing control of the capital Damascus, while the ongoing war between Ukraine and Russia continues to create turmoil. Adding to this, political instability in South Korea—a key pillar of the East Asian economy—has further bolstered the dollar’s appeal.

“Right now, there seems little reason to reduce long dollar positions, and after two weeks of consolidation, we see it as more likely that the dollar will resume its uptrend,” ING analysts said in a note.

U.S. consumer inflation data for November will be released on Wednesday, offering further insights into the Fed’s interest rate trajectory.

Euro Awaits Latest European Central Bank Meeting

In Europe, the EUR/USD rose to 1.0579, with investors focused on the European Central Bank’s upcoming interest rate decision on Thursday, its final meeting of 2024. Current indicators suggest the ECB will approve another 25-basis-point rate cut, marking the fourth reduction this year.

Eurozone inflation rose in November, though it appears to be trending toward the ECB’s 2% target. Signs of easing wage pressures have also emerged. However, since the ECB’s last meeting in October, tariff risks for Europe have risen following Trump’s election victory, political turmoil in Germany and France has intensified, business activity has slowed, and the euro has weakened.

“Certainly, there seems little reason for the ECB to be cheerful at the moment, even though hard data remains better than expected,” ING commented.

The GBP/USD pair rose 0.3% to 1.2776, with the pound demonstrating resilience as the Bank of England continues efforts to tackle persistently high inflation. U.K. consumer prices increased 2.3% in the 12 months to October, pushing inflation back above target. The Bank of England cut rates in November for the second time this year and is likely to ease monetary policy more gradually than its peers in 2025.

Will the Bank of Japan Raise Rates Next Week?

In Asia, the USD/JPY gained 0.3% to 150.44, following revised gross domestic product data showing that Japan’s economy grew slightly more than expected in the third quarter, though growth was slower compared to the prior quarter. Investors remain divided on whether the Bank of Japan will raise rates next week in light of the updated growth figures.

The USD/CNY rose 0.1% to 7.2748 after data revealed that consumer inflation in China contracted more than expected in November despite recent stimulus measures. Producer price inflation also remained subdued. Attention now turns to China’s annual Central Economic Work Conference this week for potential announcements on additional stimulus measures from the central bank.

The AUD/USD rose 0.9% to 0.6444 ahead of Tuesday’s Reserve Bank of Australia meeting. While the RBA is expected to leave rates unchanged, it may adopt a less hawkish stance given signs of weakening Australian economic conditions.

The USD/KRW rose 0.5% to 1,431.49, nearing two-year highs as South Korea’s political crisis escalated. Prosecutors launched a criminal investigation against President Yoon Suk Yeol on Sunday over his failed attempt to impose martial law the previous week. Although Yoon survived an impeachment vote in the opposition-controlled parliament on Saturday, his own party chairman has suggested he may be sidelined before stepping down.