The US dollar fell on Monday from a two-year high, as traders pared some gains seen during the holiday period ahead of key data this week, while the Chinese yuan fell to a 16-month low.
In Canada, Prime Minister Justin Trudeau is increasingly likely to announce his intention to resign, although a final decision has not been made, sources told Reuters.
Markets appear to have factored in this and may welcome an election to clear the air, sending the US dollar down 0.36% against the Canadian dollar to C$1.4395.
Other currencies were lower against the greenback in thin trading over the holiday period, as investors focused on the strength of the US economy expected in 2025 and President-elect Donald Trump’s tariff policies.
However, the US currency fell on Monday, with the dollar index down 1.01% to 107.72, compared with a more than two-year high of 109.54 reached on Thursday.
“This week will see a return to normal market conditions and an increase in FX liquidity,” said Francesco Pesole, FX strategist at ING.
“This could lead to some weakening of the US dollar’s momentum, as the currency may come back into line with the slight erosion of its interest rate advantage over the holiday period.”
US government bond yields remained relatively stable over the holiday period, while German bond yields, the eurozone benchmark, rose.
The euro strengthened 1.07% to $1.0418, moving away from a 25-month low hit last week.
Meanwhile, the pound sterling rose 0.9% to $1.2354 after falling to an eight-month low on Thursday.
Also in focus was the Chinese yuan, which on Friday weakened past the psychological level of 7.3 per dollar in the domestic market for the first time in 14 months, after the People’s Bank of China (PBOC) aggressively defended that level throughout December.
The domestic yuan fell to a 16-month low of 7.3301 per U.S. dollar.
“The weakness in the renminbi has accelerated recently on expectations that President-elect Trump will soon raise tariffs on imports from China,” said Lee Hardman, senior currency analyst at MUFG.
He also cited “a significant widening in the yield differential between the U.S. and China that has pushed the renminbi further lower.”
Before markets opened on Monday, the PBOC set the midpoint rate, around which the yuan is allowed to trade within a 2% range, at 7.1876 per dollar.
Investors are focusing on the U.S. nonfarm payrolls report due on Friday for clarity on the state of the world’s largest economy.
Several Fed policymakers are scheduled to speak this week and are expected to reiterate recent comments that efforts to rein in inflation are far from over.