By Karen Brettell
NEW YORK (Reuters) – The U.S. dollar hit a two-year high and was on track to post annual gains against almost all major currencies on Tuesday on the prospect that the Federal Reserve will keep interest rates higher than peers the US currency led rivals to dominate.
Traders have been adjusting to the U.S. central bank taking a slow and cautious approach to further rate cuts next year as inflation remains above the Fed’s 2% annual target.
Analysts also expect President-elect Donald Trump to introduce policies including business deregulation, tax cuts, tariffs and a crackdown on illegal immigration to boost growth and increase price pressures next year.
That has pushed up US Treasury yields and increased demand for the US currency.
“US yields have been adjusted higher due to the potential inflationary impact of the incoming Trump administration’s policy agenda, including tariff hikes, tighter immigration policies and maintaining accommodative fiscal policy,” said Lee Hardman, senior currency analyst at MUFG.
The stock was last up 0.41% on the day at 108.49, having previously reached 108.58, its highest level since November 2022. The stock is on track for an annual gain of 7.0%.
Weaker growth prospects outside the United States and rising geopolitical tensions in the Middle East and the ongoing war between Russia and Ukraine have boosted demand for the U.S. currency this year.
The dollar has been boosted by “rising concerns about growth elsewhere amid geopolitical risks,” analysts said Action (WA:) Economics said in a note.
Trading volumes were thin on Tuesday, ahead of the New Year’s holiday on Wednesday.
The Japanese currency was among the year’s biggest losers, on track for its fourth annual loss against the dollar as it suffers from a wide interest rate differential between Japan and the United States.
Analysts expect the Japanese currency will ultimately be supported by further easing by the Fed and interest rate hikes by the Bank of Japan. Until then, traders are wary of intervention by Japanese authorities, after stepping in several times this year to support the currency.
The dollar last rose 0.29% to 157.28 yen and is on track for an annual gain of 11.5%.
The euro fell 0.52% to $1.0353 and is on track for an annual decline of 6.2%, with traders expecting the European Central Bank to be sharper with its cuts than the Fed.
Sterling weakened 0.34% to $1.2508 and was on track for a 1.6% decline in 2024, the strongest performance of any major currency against the dollar this year.
The Australian and New Zealand dollars both fell to two-year lows on Tuesday. A decline of around 9.2% was expected this year, the weakest annual performance since 2018. AUD/
The economy was set for an 11.4% decline, its weakest performance since 2015.
In cryptocurrencies, bitcoin gained 2.07% to $93,824. It hit an all-time high of $108,379.28 on December 17 and is projecting a 121% gain this year.
