Dollar strengthens as solid U.S. data pushes up bond yields

The dollar pushed higher for a second day on Wednesday, while other major currencies languished near multi-month lows after strong U.S. data drove a spike in bond yields and pared some bets on Federal Reserve rate cuts.

Data on Tuesday showed U.S. job openings unexpectedly rose in November and layoffs were low, while a separate survey showed U.S. services sector activity accelerated in December and a measure of input prices hit a two-year high — a possible inflation warning.

Bond markets reacted by sending 10-year yields up more than eight basis points to touch an eight-month high of 4.699%.

"We're getting very strong U.S. numbers ... which has rates going up," said Bart Wakabayashi, Tokyo branch manager at State Street, pushing expectations of Fed rate cuts out to the northern summer or beyond.

"There's even the discussion about will they cut or may they even hike? The narrative has changed quite significantly."

Markets are now pricing in just 38 basis points of easing from the Fed this year, with a first cut in July.

U.S. private payrolls data due later in the session will be eyed for further clues on the likely path of U.S. rates.

Traders are jittery ahead of key U.S. labor data on Friday, and the inauguration of Donald Trump on Jan. 20, with his second U.S. presidency expected to begin with a flurry of policy announcements and executive orders.

The dollar slid on Monday following a report in the Washington Post that Trump's aides were exploring plans to apply trade tariffs only to sectors seen as critical to U.S. national security.

However the currency made up some ground after Trump denied the report in a post on his Truth Social platform.

On Wednesday the dollar index rose 0.15% to 108.86, chasing the two-year peak of 109.58 it hit last week.

Other currencies struggled.

The yen sagged close the 160 per dollar level that drew intervention last year and touched 158.42 overnight, its weakest on the dollar for nearly six months. It last sat at 158.130.

Japan's consumer sentiment deteriorated in December, a government survey showed, casting doubt on the central bank's view that solid household spending will underpin the economy and justify a rise in interest rates.

In the euro zone, inflation rose in December, data showed on Tuesday, but markets are still pricing in 100 bps of easing from the European Central Bank this year.

The euro was down 0.16% on the day and traded around $1.0323, after touching $1.0224 last week, its lowest in two years.

"The lack of strong leadership in Europe, particularly at a time when Europe is facing Trump tariffs and uncertainties about NATO, suggest that Euro bulls are going to be quite reluctant to step forward," said Jane Foley, senior forex strategist at Rabobank.