The dollar wobbles in thin trading; the yen firms. The dollar was attempting to find a floor on Tuesday in a trade that was down due to the Christmas season under pressure from the evidence that inflation in the biggest economy in the world is declining, which will likely give the Federal Reserve flexibility to cut interest rates next year.

On the other hand, the yen remained stable close to its most recent five-month high due to expectations that the Bank of Japan (BOJ) could soon announce the conclusion of its ultra-easy policy. The approach has maintained pressure on the Japanese yen for the majority of 2022 and 2023, during which other major central banks have begun aggressive rate-hike cycles.

The day after Christmas was a relatively quiet day for currency movements. This was because markets in some countries, including the United Kingdom, Australia, New Zealand, and Hong Kong, were closed for public holidays.

The New Zealand dollar reached a new five-month high of $0.6325 against the greenback, while the Australian dollar was similarly nestled near its most recent five-month high and recently purchased at $0.6817. Both of these currencies were trading on the greenback.

The euro rose by 0.03% to $1.1024, far from a five-month high of $1.1040 last week. On the other hand, the value of the pound sterling remained almost unchanged at $1.2706.

According to data on Friday, prices in the United States declined in November from the previous month for the first time in more than three and a half years. Additionally, the annual inflation increase dropped below 3%, which boosted market expectations of a reduction in interest rates from the Federal Reserve in March of next year.

The report was released one week after Federal Reserve officials opened the door to the possibility of a rate reduction in 2024 during the central bank’s last policy meeting. This action caused the dollar to fall in value.

“The Fed has made considerable progress on inflation, as core started the year closer to an annual rate of 5%, though the job is not yet done in ensuring inflation is on a sustained trajectory toward its 2% target,” Wells Fargo analysts wrote in a research note.

Over the last week, the dollar index has been hovering close to a five-month low of 101.42, most recently trading at 101.59.

The comments by the Governor of the Bank of Japan, Kazuo Ueda, provided additional support for the yen’s rise to 142.25 per dollar in Asia, which gained 0.1%.

Ueda stated on Monday that the probability of the central bank achieving its inflation target was “gradually rising” and that the BOJ would consider changing policy if the prospects of sustainably achieving the 2% target increased “sufficiently.” However, he stated that the BOJ had not decided on a specific time to change its ultra-loose monetary stance.

According to Alvin Tan, the director of Asia FX strategy at RBC Capital Markets, “BOJ Governor Ueda did not provide any policy guidance in his speech yesterday, despite the fact that he expressed optimism that Japan was finally getting out of the low-inflation environment.”

Following the release of a plethora of statistics on Tuesday, it was revealed that Japan’s unemployment rate remained constant at 2.5% in November compared to the previous month. Additionally, business-to-business service inflation remained stable at 2.3% in November.

The Chinese yuan saw a decline in value versus the United States dollar due to increased anticipation that Beijing may implement more monetary easing measures.

After the previous week, five of China’s top state banks reduced the interest rates they charged on certain deposits. This is the third wave of such reductions this year. Several publicly traded banks have followed suit, according to an article published on Tuesday by the official Shanghai Securities News.

Caitong Securities stated in research that the cutbacks will drive money into wealth management products and bond funds and might make the People’s Bank of China’s (PBOC) journey toward relaxing monetary policy more smooth.

Compared to its offshore equivalent, which was last seen at 7.1461 per dollar, the onshore yuan slightly decreased by 0.1%, reaching 7.1433 per dollar.