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US Dollar Set for Strong Weekly Gain, Boosted by Fed Policies and Economic Resilience
The US dollar is gearing up to end this week with its best showing since early December 2024. This is boosted by expectations of a stronger recovery of the US economy in the year 2025 and higher US interest rates that are yet to peak.
Dollar Hits Two-Year High
The US dollar started the year at a strong level hitting its highest in more than two years at 109.54 against other currencies on January 02 extending its rally that began in 2024. Global bonds have sold off due to a dovish Fed and an improving US economy and equities have gravitated upwards on the dollar. Market optimism stems from business expectations that the policy mantra of US President-elect Donald Trump will give the economy more boost and possibly stir inflation.
Looks like dollar strength is here to stay for now in early 2025 given the US exceptionalism story is here to stay, and it still comes with high US yields,” said Charu Chanana, chief investment strategist at Saxo. He further added, “Add to that the uncertainty from policies of the incoming (Donald) Trump administration, and you also get the safety aspect of the dollar looking attractive.
Jobless Claims as an Indicator of Economic Diversity
In other support to the US economy, data on jobless claims printed on January 02 exhibited a decrease in the amount of Americans applying for unemployment benefits, reaching the lowest level in the past eight months. This development has added further support to the dollar, which has also found support due to factors of safe haven investment during risk aversion around the world.
The dollar index last was at 109, and while down 0.2% on the day, the greenback is proving to be on course for its weekly gain of just under 1%, its strongest since early December.
Euro And Other Currencies Under Pressure
However, other currencies are lagging as the greenback remains the king of the forex market. The euro was last trading 0.26% higher at $1.02930, but on course for a 1.3% weekly loss, making its worst since November.
The common currency was one of the biggest victims of a surging dollar, which declined by 0.86% in the prior session to edge to a more than two-year low of $1.022475.
We expect Trump's policy mix to trigger further dollar strengthening, with European currencies – and the euro in particular – coming under pressure from protectionism and monetary easing, said analysts at ING.
Likewise, the British pound rose 0.2% to $1.2406 after shedding 1.16% on January 02, though it may shed about 1.4% this week.
Yen and Yuan Fight Hard Against Strong Dollar
The Japanese yen edged up by 0.25% to 157.095 per dollar but it is close to a five-month low figure of 158.09 per unit of the US dollar. The yen remains vulnerable to global interest rates; the huge spread between the US and Japanese rates together with the central bank’s measured approach to tightening monetary policy remains an area of concern for the Japanese currency.
China’s yuan fell to its lowest in over a year onshore at 7.3188 per dollar. Lower yields and further expectations of more domestic rate cuts have gotten to the currency’s value.