Dec 25 2024: The U.S. dollar maintained its strength during thin holiday trading on Tuesday, bolstered by expectations of limited Federal Reserve rate cuts in 2025.
At 04:25 ET (09:25 GMT), the Dollar Index, which measures the greenback against six major currencies, rose 0.1% to 107.905, hovering near its recent two-year high.
Dollar Demand Continues
The dollar has seen sustained demand following the Federal Reserve’s hawkish outlook, shared during its final policy meeting of the year. The Fed projected only two 25 basis-point rate cuts in 2025, leading markets to price in just 35 basis points of easing for that year.
This outlook has driven U.S. Treasury yields higher, with the two-year yield standing at 4.34% and the 10-year yield stabilizing near a seven-month high of 4.59%.
“We believe the Fed’s hawkish tone will underpin dollar strength into the new year,” analysts at ING noted in a commentary.
With the year-end approaching, trading volumes are expected to thin further, reflecting the shortened festive trading week.
Euro Nears Two-Year Low
The euro struggled, with EUR/USD slipping 0.1% to 1.0396, close to a two-year low. The European Central Bank (ECB) has been cutting interest rates more aggressively than the Federal Reserve as the eurozone grapples with stagnant economic growth.
Earlier this month, the ECB implemented its fourth rate cut of the year, and President Christine Lagarde recently signaled that further reductions are likely.
“If incoming data align with our baseline, we expect to lower interest rates further,” Lagarde stated during a speech in Vilnius.
Inflation in the eurozone stood at 2.3% last month, with the ECB projecting it to stabilize at its 2% target in 2024.
Meanwhile, GBP/USD traded flat at 1.2531. Sterling showed signs of vulnerability following data revealing no economic growth in the U.K.’s third quarter. Additionally, the Bank of England’s recent decision to hold interest rates saw a more dovish split (6-3) than anticipated.
Focus Shifts to Bank of Japan
In Asia, USD/JPY dipped 0.1% to 157.03, retreating from recent highs of 158 yen, as the Bank of Japan signaled a cautious approach to further interest rate hikes.
USD/CNY edged up 0.1% to 7.3021, near a one-year high, amid expectations of increased fiscal spending and looser monetary policies in China. Beijing has indicated plans to ramp up fiscal measures in 2025 to support its slowing economy.
