The dollar headed for its best week since November on US rates, economic outlook By Reuters
From Rae Wee
SINGAPORE (Reuters) – The dollar was on track for its best weekly performance in more than a month on Friday, buoyed by expectations of fewer Federal Reserve rate cuts this year and views that the U.S. economy will continue to outperform other global rivals. .
The currency started the new year strongly, hitting a more than two-year high of 109.54 against a basket of currencies on Thursday, extending a stellar run from last year.
Its higher charge came thanks to a hawkish Fed and a resilient US economy.
“Dollar strength looks set to remain for now into early 2025 given the story of US exceptionalism remaining and still coming with high US yields,” said Charu Chanana, chief investment strategist at Saxo.
“Add to that the uncertainty over the policies of the incoming (Donald) Trump administration, and you have a security aspect of the dollar that looks attractive.”
Ahead of US President-elect Trump’s inauguration on January 20, markets viewed his imminent return to office with caution amid uncertainty over his plans for heavy import tariffs, tax cuts and immigration restrictions.
This in turn gave the US dollar additional safe-haven support.
It last stood at 109.18 and was on track for a weekly gain of 1.1%, the strongest since November.
The euro, meanwhile, was among the biggest losers against the rising dollar, having fallen 0.86% in the previous session to a more than two-year low of $1.022475.
“In terms of the eurozone, there could be a direct impact of higher trade tariffs on the eurozone or (its) economy, but even perhaps more importantly, higher tariffs on China, which will also be that weakness in the eurozone,” said Kyle Rodda, senior analyst financial markets on Capital.com.
The common currency last bought $1.0272 and is headed for a weekly decline of 1.6%, its worst since November.
Similarly, the pound was up 0.04% at $1.2385, after falling 1.16% on Thursday. It was on track to lose roughly 1.6% for the week.
It also helped the dollar expand its dominance over other currencies and potentially widen the exchange rate differential between the US and the rest of the world.
While traders are now pricing the Fed’s rate cut this year at just around 44 basis points, they see an easing of more than 100 bps from the European Central Bank and roughly 60 bps from the Bank of England.
Elsewhere, the yen rose 0.16% to 157.25 per dollar, but was not too far off a five-month low of 158.09 per dollar hit in December.
The Japanese currency has been a victim of a sharp interest rate differential between the US and Japan for more than two years, with the Bank of Japan’s caution about further rate hikes adding to the yen’s pain.
The yen has fallen more than 10% in 2024, extending its losses for a fourth year in a row.
Down below, the Australian dollar rose 0.2% to $0.6216, but remained near a more than two-year low and was on track to fall 0.2% on the week.
The New Zealand dollar rose 0.17% to $0.56065, but also headed for a weekly loss of 0.66%.
