By Karen Brettell
NEW YORK (Reuters) – The U.S. dollar jumped to a two-year high on Thursday on the first trading day of 2025, building on last year’s strong gains on expectations that U.S. growth will beat peers and U.S. yields will keep relatively high.
The Federal Reserve has signaled it will be more cautious in cutting rates as inflation remains stubbornly above its 2% annual target and the economy remains strong.
The policies of newly elected US President Donald Trump are also expected to boost growth and possibly contribute to upward price pressure.
“In terms of economic growth in 2025, there is no rival to the dollar,” said Adam Button, chief currency analyst at ForexLive in Toronto.
“Capital flows are dominating the New Year and the US stock market has truly put every other global market to shame,” Button added. “The dollar is the only game in town until there is a real stumbling block in the American economy.”
Data on Thursday confirmed a still solid labor market. The number of Americans filing new claims for unemployment benefits fell to an eight-month low last week, pointing to low layoffs in late 2024.
The price last rose 0.77% on the day at 109.38.
The euro fell 1.01% to $1.025, the lowest level since November 2022.
The common currency accelerated losses after falling below the $1.03 level, indicating technical factors exacerbated the sell-off.
Traders expect deep rate cuts from the European Central Bank in 2025, with markets pricing in at least four cuts of 25 basis points, while unsure of even two such moves from the Fed.
ECB policymaker Yannis Stournaras said on Thursday he expects the bank’s key interest rate to be cut in the autumn from 3% to 2% now.
Sterling, which outperformed most major currencies against the dollar last year, fell 1.19% to $1.2368, its lowest level since April. The decline accelerated after breaking the resistance around $1.2475.
The dollar gained 0.47% to 157.61 Japanese yen.
In late December, yields hit a five-month high above 158.09 yen, potentially putting pressure on the Bank of Japan, which is expected to raise rates early this year, but perhaps not anytime soon.
languished at a 14-month low as concerns about the health of the world’s second-largest economy, the prospect of US tariffs from the Trump administration and falling local yields weighed on investor sentiment. CNY/
In cryptocurrencies, bitcoin rose 2.77% to $97,404.93.
