SINGAPORE: The dollar was firm on the last trading day of the year, poised to clock strong gains in 2024 against most currencies as investors prepared for fewer U.S. rate cuts and the incoming Trump administration’s policies.
The dollar’s ascent, buoyed by rising Treasury yields, has pushed the yen toward its lowest levels since July, when the Japanese authorities last intervened. On Tuesday, it was at 157.02 per dollar, on course for a 10% drop in 2024, its fourth straight year of decline against the dollar.
Japanese markets are closed for the rest of the week, and with most markets closed on Wednesday for the New Year’s Day holiday, volumes are likely to be razor thin.
That has left the dollar index , which measures the U.S. currency versus six other major units, at 108.06, not far from the two-year high it touched this month.
The index has risen 6.6% in 2024 as traders cut back on bets of deep rate cuts next year.
The Federal Reserve shocked markets earlier this month by cutting their interest-rate forecast for 2025 to 50 basis points of cuts, from 100 basis points, wary of stubbornly high inflation.
Goldman Sachs strategists though expect three rate cuts from the Fed next year, confident that inflation will still trend lower.
“We see the risks to interest rates from the second Trump administration’s policies as more two-sided than widely assumed,” they said in a note.
The dollar has also been boosted by expectations President-elect Donald Trump’s policies of looser regulation, tax cuts, tariff hikes and tighter immigration will be both pro-growth and inflationary and keep U.S. yields elevated.
“Although the markets’ initial reaction to Trump’s re-election to the White House back in November was euphoric, they now seem to be more carefully analysing the incoming administration’s priorities,” said Gary Dugan, chief executive officer at Global CIO Office.
The possibility of U.S. rates staying higher for longer has put a dent on most other currencies, especially those in emerging markets as traders worry about the stark interest rate difference between the United States and other economies.
The euro is set for a 5.7% decline against the dollar this year, with traders expecting the European Central Bank to be sharper with its cuts than the Fed.
On Tuesday, the single currency was steady at $1.04025, but staying close to the two-year low of $1.03315 it touched in November.
In what turned out to be another turbulent year, the yen breached multi-decade lows in late April and again in early July, sliding to 161.96 per dollar and spurring bouts of intervention from Tokyo.
It then touched a 14-month high of 139.58 in September before giving up those gains and is now back near 157, with traders watching out for signs of intervention from Tokyo.
The Bank of Japan held interest rates steady at this month’s meeting, and governor Kazuo Ueda said the central bank was scrutinising more data on next year’s wage momentum and awaiting clarity on the new U.S. administration’s economic policies.
A Reuters poll taken earlier this month showed the BOJ could raise rates by end-March and interest rates markets are pricing in only a 41% chance of a rate rise in January.
Sterling was little changed at $1.2545 in early trading, on course for a 1% fall in 2024.
The risk-sensitive Australian and New Zealand dollars were tentative on the day, sticking close to their two-year lows.
The Aussie last fetched $0.62155, set for a drop of 8.7% this year, its weakest yearly performance since 2018.
The kiwi was at $0.5637, poised for a decline of nearly 11% in 2024, its softest performance since 2015.
In cryptocurrencies, bitcoin inched higher at $92,370, well below the record high of $108,379.28 it touched on Dec. 17.
The world’s best known and biggest cryptocurrency is set for a bumper 117% rise for the year.
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