U.S. Dollar Steadied on Monday. What about the Japanese Yen?

The U.S. dollar held onto its gains on Monday, while the Japanese yen climbed higher. Investors were cautious due to new U.S. economic data, along with surging global Covid-19 cases. Meanwhile, Italian political turmoil and new pandemic restrictions held the euro under pressure.

In Asia, the common currency tumbled down to a six-week low of $1.2066, plunging to a one-month low of 125.20 yen. The Japanese yen soared by about 0.2% at 103.70 per dollar. Furthermore, the currency jumped against the risk-sensitive Australian and New Zealand dollars.

The Antipodeans traded lower against the greenback. The Aussie dollar fell to a one-week low of $0.7679, while the kiwi plunged to a three-week low of $0.7117.

However, Chinese economic data surpassed analysts’ estimations and headed off further selling. Despite that, it was not enough to shift traders’ mood.

Thus far, the safety bid has added another layer of support for the U.S. currency ever since the Democrats won control of U.S. Congress two weeks ago. Their victory triggered a surge in yields as traders priced in larger stimulus from a Biden administration.

On Friday, the mood soured though, after data showed U.S. retail sales drop for a third straight month in December. This news caused more worries about the recovery running into trouble as health authorities stated that the worst of the latest coronavirus wave is yet to come.

Europe is already facing sharply rising cases. Meanwhile, an Italian government must survive crucial votes in the parliament on Monday and Tuesday to maintain control.

The dollar index was steady on Monday after touching a one-month high. It last traded at 90.827. The British Pound exchanged hands at a one-week low of $1.3567.

What do the analysts think?

Moh Siong Sim, Bank of Singapore’s currency analyst, noted that the market is in a bit of a wait and see mode, while also debating about the greenback, in terms of whether we will see a further decline or whether higher U.S. yields provide support.

According to him, the balance of risks remains in favour of a reflationary environment. Thus, risk sentiment should stay positive. The analyst added that we would likely see a further greenback decline.

Meanwhile, the Canadian dollar tumbled down by 0.2% due to reports about Joe Biden planning to rescind permission for the Keystone XL pipeline soon.

President-elect Biden is due to be inaugurated later this week, but tensions remain high after mob the violence that occurred recently.

Some traders expect Janet Yellen, Biden’s pick for Treasury Secretary, to rule out seeking a weaker dollar.