Under pressure from signs that inflation in the biggest economy in the world is slowing down, the dollar was attempting to find a floor on Tuesday in holiday-shortened trade, which will probably allow the Federal Reserve to ease interest rates in 2024.
Meanwhile, the yen maintained its strength, hovering around its most recent five-month high due to the possibility that the Bank of Japan may soon terminate its ultra-easy policy. That policy has left the Japanese currency under stress for most of 2022 and 2023, while other major central banks around the world have started aggressive rate-hike cycles.
The day after Christmas saw very little movement in currency prices, as markets remained closed in Australia, New Zealand, and Hong Kong in observance of Boxing Day.
The euro fell 0.06% against the dollar to $1.1019, but it was still relatively close to the four-month high of $1.1040 reached last week.
The Australian and New Zealand currencies were hovering around their most recent five-month highs, while sterling was barely moving at $1.2701.
The dollar index was last at 101.65, staying around a five-month low of 101.42 that was reached last week.
According to data issued on Friday, prices in the United States decreased in November for the first time in over three and a half years. This resulted in an annual rise in inflation that fell below 3% and raised market expectations of a rate cut by the Federal Reserve in March 2024.
The reading was released one week after Fed policymakers hinted at the possibility of cutting interest rates in 2024 during the central bank's last policy meeting of the year, a move that weakened the dollar.
According to Wells Fargo analysts, the Fed has made significant strides toward controlling inflation, with core inflation starting the year closer to a 5% annual rate. However, work remains to be done to ensure that inflation keeps on a sustained trajectory toward the 2% target.
Asia saw a 0.1% increase in the value of the yen to $142.20 per dollar, with further support coming from remarks made by BOJ Governor Kazuo Ueda, who hinted at potential policy changes.
Ueda stated on Monday that the possibility of the central bank reaching its 2% inflation target was gradually improving. He added that the BOJ had not yet determined when to end its ultra-loose monetary policy but that it would consider shifting policy if the prospects of achieving the target increased sufficiently.
According to RBC Capital Markets' head of Asia FX strategy, Alvin Tan, Ueda expressed optimism that Japan was eventually getting out of its low-inflation situation, but he did not offer any specific policy directions in his speech yesterday.
Numerous statistics released on Tuesday revealed that while business-to-business service inflation remained stable at 2.3% in November, Japan's unemployment rate remained unchanged at 2.5% from the preceding month.
In other news, the Aussie last purchased $0.68065, and the Kiwi increased 0.1% to $0.63145.