Investing.com – The US dollar fell on Tuesday, but was still on track to post strong gains in 2024, given the Federal Reserve’s more cautious stance on interest rate cuts and expectations for the incoming administration of Donald Trump.
At 05:35 ET (10:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 107.830 but remains just below the two-year high set earlier this month.
The index was still on track for a monthly gain of around 1.5%, bringing year-to-date gains to almost 7%.
Dollars in demand
The Fed’s recent signal that there will be fewer cuts in 2025 has given the dollar renewed strength, pushing the benchmark to a more than seven-month high last week.
The U.S. central bank forecast just two rate cuts of 25 basis points in 2025 at its final policy meeting of the year earlier this month, a sharp decline from the four rate cuts it signaled in September.
The election of Donald Trump as the new president also boosted the dollar, as his policies of looser regulations, tax cuts, tariff increases and tighter immigration are seen as both pro-growth and pro-inflation, and are likely to contribute to the Fed’s cautious stance. .
Trading volumes are likely to be limited on Tuesday, ahead of Wednesday’s holiday, and the focus will then be on weekly numbers and data later in the week, as well as comments from FOMC members.
The euro is eyeing interest rate cuts by the ECB
In Europe, the price rose to 1.0409, while trading in a tight range with the German market went on holiday.
The pair will expect a drop of just under 6% this year, with interest rates likely to be cut more sharply than the Federal Reserve in 2025.
The ECB cut rates earlier this month and announced that more cuts are on the horizon as economic growth in the region stagnates, while the US central bank recently lowered its projection for rate cuts in the new year.
The eurozone economy could also suffer from newly elected President Donald Trump’s trade policies, given the prospect of tariff increases and the potential of a trade war.
traded 0.1% lower at 1.2539, moving within a tight trading range ahead of Thursday’s release.
This is expected to show that the country’s industrial sector continued to contract sharply in December after data showed the UK economy failed to grow in the third quarter.
Chinese manufacturing activity grows in December
In Asia, yields rose 0.6% to 7.3443 after China’s economy grew for a third straight month in December as a raft of new stimulus measures continued to provide support, purchasing managers’ index data showed on Tuesday.
However, the increase was slightly lower than market expectations and lower than that of the previous month.
Markets are waiting for more clarity on Beijing’s stimulus plans for the coming year. Recent reports have suggested that the country will increase fiscal spending to support economic growth.
traded 0.1% higher at 156.92 on Tuesday after hitting a five-month high in the previous session, with the pair up more than 11% for the year.
The ECB signaled it will take time to consider further rate hikes after the central bank kept rates stable at 0.25% at this month’s meeting.
