The dollar and yen strengthened on Tuesday as risk-off sentiment gripped markets following weaker-than-expected U.S. economic data and rising concerns over global growth. U.S. pending home sales showed resilience, hitting a 21-month high in November, but other indicators painted a mixed economic picture. The Chicago PMI fell to 36.9, significantly below forecasts, signaling persistent contraction in manufacturing, while the Dallas Fed Manufacturing Index turned positive, offering a more optimistic view of regional activity.

The yen attracted haven flows amid falling U.S. Treasury yields, declining equity markets, and softer gold prices, further supported by souring risk sentiment. Meanwhile, USD/CNH rallied above 7.32, reflecting dollar strength as markets responded to weak Chinese economic data and cautious sentiment ahead of PMI releases. Commodity-linked currencies, including the Australian dollar, faced pressure amid extended risk-off dynamics in commodities markets.

Market Outlook: Dollar and Yen to Dominate Amid Risk-Off Sentiment

• Dollar: Expected to remain supported by its safe-haven appeal and rate advantage, particularly if U.S. economic data underscores resilience in the face of global uncertainty.
• Yen: Poised to benefit further from haven flows, with Treasury yields and risk sentiment likely determining near-term direction.
• Euro: Faces downside risks unless European sentiment improves or data signals a rebound in economic activity.
• Commodity-Linked Currencies: Vulnerable to weak Chinese demand and risk aversion, though key technical support levels may limit downside in the short term.
• Equities: Likely to remain volatile as investors weigh weak economic data against expectations for monetary policy adjustments in 2024.

Currency Market Summary: Subdued Sentiment Across Majors

• EUR/USD: Fell 0.35%, retreating to a six-session low of 1.0372 before recovering slightly, as safe-haven flows into the dollar and yen pressured the euro.
• USD/JPY: Declined 0.46%, hitting a five-day low of 156.69 before rebounding to 157.35, driven by yen demand amid falling U.S. Treasury yields and risk aversion.
• GBP/USD: Slipped 0.20%, dropping below its 10-DMA to test support at 1.2506 before recovering to 1.2550, as stronger dollar demand limited sterling gains.
• AUD/USD: Recovered 0.20% late in the session after falling to 0.6204, with buyers defending the key 0.6200 support level despite ongoing bearish technical pressures.

Currency Outlook: Volatility Ahead as Risk Sentiment and Data Take Focus

• Dollar: Safe-haven demand and its rate advantage will likely keep the greenback supported, especially if U.S. data reinforces economic resilience amid global uncertainties.
• Yen: Haven flows are expected to continue supporting the yen, with additional strength likely if Treasury yields decline further or risk-off sentiment persists.
• Euro: Vulnerable to further losses unless European sentiment improves or economic data signals a recovery in growth momentum.
• Sterling: Likely to remain range-bound, with upside limited by bearish technicals and stronger dollar demand unless U.K. data surprises positively.
• Australian Dollar: Faces downside risks from weak Chinese demand and global risk aversion, though key support near 0.6200 may provide short-term relief.

Conclusion: Risk Sentiment and Economic Data to Guide Markets

The dollar and yen are positioned to dominate as safe-haven currencies amid ongoing global growth concerns and weak risk sentiment. The euro and sterling face downside risks from mixed economic data and stronger dollar demand, while the Australian dollar remains vulnerable to bearish pressures from weak commodities and Chinese demand. Markets are likely to remain volatile, with U.S. data releases, Treasury yield movements, and developments in China shaping near-term trends.