The dollar’s strength strengthened on the last trading day of 2024, and it is headed for significant gains during the year against most currencies as investors prepare for a smaller cut in US interest rates and the policies of the incoming administration of President-elect Donald Trump.
The rise of the dollar, supported by rising Treasury bond yields, pushed the yen towards its lowest levels since last July, when Japanese authorities last intervened.
The yen reached 156.75 against the dollar, on track to record a 10% decline in 2024, which is the fourth consecutive year of decline against the dollar.
Japanese markets will remain closed for the rest of the week, and with most markets closed tomorrow, Wednesday, for the New Year holiday, trading volumes are likely to be very small.
The Bank of Japan kept interest rates steady at its meeting this month, and Bank Governor Kazuo Ueda said that the bank is studying more data on wages next year and is awaiting clarity on the economic policies of the new US administration.
Dollar index
The dollar index, which measures the performance of the US currency against 6 other major currencies, recorded 108.04, which is not far from the highest level in two years that it touched this month.
The index rose 6.6% in 2024 as traders reduced bets on a significant cut in interest rates next year.
The Federal Reserve (the US central bank) surprised the markets earlier this month by reducing its interest rate expectations for 2025 to a reduction of 50 basis points instead of 100 basis points, due to its concern about the continued rise in inflation.
The dollar received support from expectations that the policies of the upcoming Trump administration, which include easing regulatory restrictions, reducing taxes, raising customs duties, and restricting immigration, will be supportive of growth and cause inflation at the same time.
The possibility that US interest rates will remain high for a longer period has affected most currencies, especially those of emerging markets, as traders are concerned about the large difference in interest rates between the United States and other economies.
The euro is heading to record a 5.7% decline against the dollar this year, and traders expect the European Central Bank’s cuts to be more severe compared to the Federal Reserve.
euro
Today, Tuesday, the single European currency stabilized at $1.040, but remained close to the lowest level in two years at $1.03315 that it touched in November.
The British pound saw no significant change, recording $1.2537 in early trading, and is heading towards a 1% decline.
