Investing.com – The US dollar fell on Thursday as traders entered the new year, but the dollar remained near a two-year high hit earlier this week and is likely to remain supported in the near term given the more aggressive stance of the Fed and expectations for the future. the incoming Donald Trump administration.
At 04:45 ET (09:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 108.215, but remained close to Tuesday’s two-year high .
The dollar will remain popular in 2025
The index rose 7% in 2024 as traders dramatically scaled back expectations for Fed rate cuts in the wake of policymakers’ projections after the December policy-setting meeting.
The U.S. central bank forecast just two rate cuts of 25 basis points in 2025 at its final policy meeting of the year, a sharp reduction from the four cuts it signaled in September.
In fact, markets are currently pricing in just 42 basis points of US central bank cuts by 2025, with Donald Trump’s return to the White House creating a degree of uncertainty given his policies of looser regulation, tax cuts, tariff increases and tightening regulations. Immigration is seen as both growth-enhancing and inflation-enhancing.
Attention will focus on the release of weekly figures later in the session and on the December figure for clues about the strength of the US economy.
The euro could be on its way to parity against the dollar
In Europe, inflation rose 0.1% to 1.0364, after falling more than 6% in 2024.
Data released earlier Thursday showed eurozone industrial activity fell more quickly at the end of the year, giving little sign of an impending recovery.
The final HCOB, compiled by S&P Global, fell to 45.1 in December, with the downturn broad-based as the bloc’s three largest economies – Germany, France and Italy – were mired in an industrial recession.
Traders expected more rate cuts from the European Central Bank in 2025, with markets pricing in an easing of 113 basis points, far more than the Federal Reserve.
This difference in Fed and ECB policies “will push the euro towards parity against the dollar over the course of 2025,” ABN Amro analysts said in a note.
traded 0.2% lower at 1.2494, after falling 1.7% last year, but was nevertheless the best performing G10 currency against the dollar.
Britain rose 0.7% month-on-month in December, following a 1.2% rise in November, according to mortgage lender Nationwide.
The resilience of the UK housing market has surprised many given indications of weakening activity in the wider economy, with prices ending the year 4.7% higher than their December 2023 levels, compared to 3.7% in November – the highest annual growth rate since the end of 2022.
Interest rates were unchanged last month after consumer prices rose above target, and this central bank is likely to remain more cautious than its eurozone counterpart in 2025.
Slowdown in Chinese manufacturing growth
In Asia, yields rose 0.4% to 7.3265, rising to their highest level in more than a year, after data showed the country’s manufacturing sector grew less than expected in December.
The figures came just days after government PMI data also showed weaker-than-expected growth in the manufacturing sector.
The prints fueled concerns about a slowing economic recovery in China, with recent stimulus measures having provided only limited support.
traded 0.3% lower at 156.82, down slightly after rising to a five-month high near 158 in recent sessions, thanks to the Bank of Japan’s largely subdued 2025 outlook.
