(Reuters) -The dollar rose broadly on Monday, holding near a two-year high, while the Japanese yen rose from a five-month low against the greenback as traders continued to digest the likelihood that the Federal Reserve will ease up next will implement interest rate cuts. year.
The U.S. currency has risen in recent weeks on expectations for less easing from the U.S. central bank as inflation remains above the Fed’s annual target of 2%. Analysts also expect that the policies of the US administration of newly elected President Donald Trump will both strengthen growth and increase price pressure next year.
Fed policymakers this month lowered their 2025 interest rate forecast from 100 basis points to 50 basis points. Fed Chairman Jerome Powell said further cuts in borrowing costs now depend on further progress in reducing inflation.
It’s on track for a 6.6% gain this year. The price last rose 0.1% that day at 108.08, after hitting a two-year high of 108.54 on December 20.
The yen has suffered from a large interest rate differential between Japan and the United States.
The dollar is on track to return 11.4% against the Japanese currency this year, its fourth annual gain. It was last down 0.51% at 157.02 yen.
Some analysts expect the yen to benefit from the Bank of Japan’s expected rate hikes next year as the Fed eases. But because interest rates on US government bonds continue to rise, this has not yet been reflected in the exchange rate.
“With above-target inflation set to persist for much of 2024, price pressures could increase further if the yen were to weaken further. To support its currency, the Bank of Japan may look to raise rates more meaningfully,” said Fawad Razaqzada , market analyst. at City Index.
Some Bank of Japan policymakers saw the conditions for an upcoming rate hike falling into place, with one predicting a move “in the near future,” a summary of views at the bank’s December meeting showed on Friday , keeping alive the possibility of a rate hike in January.
Traders are also watching for possible interventions from Japanese officials if the yen continues to weaken.
Japanese Finance Minister Katsunobu Kato on Friday reiterated concerns about a falling yen and reiterated his warning that the government would take action against excessive currency movements.
The euro is headed for a 5.8% decline against the dollar this year after the European Central Bank cut rates four times in 2024 and markets expected the ECB to maintain a faster pace of rate cuts than the Fed in 2025. fell 0.25% to $1.0401.
The ECB’s next rate cut could take longer after a recent rise in inflation, Robert Holzmann, member of the ECB Governing Council, said on Saturday.
Sterling fell 0.26% to $1.2546 and is on track for an annual loss of 1.4%.
fell 0.17% to $94,222, down from a record high of $108,379.28 on December 17. The cryptocurrency is up about 122% this year.
