Dollar trades higher on underlying strength in 2025
Investing.com - The US dollar was trading higher on Thursday, the first day of 2025 trading, on hopes that U.S. growth will beat peers, a more hawkish Fed stance and expectations for the incoming Donald Trump administration.
At 12.30 ET (5:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.8% higher to 109.170. Dollar to remain in demand in 2025
The index rose 7% in 2024 as traders drastically cut back Fed rate-cut expectations in the wake of the projections of the policymakers after the December policy-setting meeting.
The US central bank projected just two 25 bp rate cuts in 2025 at its last policy meeting of the year, a sharp reduction from the four cuts it had indicated in September.
In fact, markets are currently only pricing in 42 bps of cuts from the US central bank in 2025, with the return of Donald Trump to the White House adding a degree of uncertainty given his policies of looser regulation, tax cuts, tariff hikes and tighter immigration are seen as both pro-growth and inflationary.
Focus turns to the release later in the session of weekly jobless numbers as well as the December S&P Global manufacturing PMI number, for clues towards the strength of the US economy.
In Europe, EUR/USD traded 0.9% lower to 1.0258, following the more than 6% drop in 2024.
Data released earlier Thursday showed that manufacturing activity in the eurozone declining at a faster rate at the end of the year, offering scant signals of an imminent recovery.
HCOB's final eurozone manufacturing Purchasing Managers' Index , compiled by S&P Global, dipped to 45.1 in December, with the downturn broad-based as the bloc's three largest economies - Germany, France and Italy - were stuck in an industrial recession.
Traders expected more interest rate cuts from the European Central Bank in 2025, with markets pricing in 113 basis points of easing, much more than the Federal Reserve.
This divergence in Fed & ECB policy “will push the euro to parity vs the dollar in the course of 2025,” said analysts at ABN Amro, in a note.
GBP/USD traded 1.2% lower to 1.2366, adding to the fall of 1.7% last year, but was nevertheless the best-performing G10 currency versus the dollar.
UK house prices rose in December, according to mortgage lender Nationwide, jumping by 0.7% in monthly terms during December, following a 1.2% increase in November.
The resilience of the UK housing market has surprised many given indications of weakening activity across the wider economy, with prices ending the year 4.7% higher than their level of December 2023, up from 3.7% in November - the highest annual growth rate since late 2022.
The Bank of England held interest rates unchanged last month after consumer prices rose above target, and this central bank is likely to remain more cautious than its eurozone counterpart in 2025. Slowing Chinese manufacturing growth
In Asia, USD/CNY rose 0.6% to 7.3435, climbing to its highest level in over a year after Caixin PMI data showed that the country’s manufacturing sector grew less than expected in December.
The reading came just days after government PMI data also showed weaker-than-expected growth in the manufacturing sector.
The prints ramped up concerns over a slowing economic recovery in China, with recent stimulus measures having provided only limited support.
USD/JPY traded 0.35% higher to 157.79, amid a mostly dovish outlook for 2025 from the Bank of Japan.
Source: Investing.com
