Dollar settles near two-year highs amid strong U.S. outlook
The US dollar index settled near the levels of 109.10, as the dollar is on its way to a weekly gain of just over 1%, the highest week since last November.
The US dollar has started the New Year strongly, yesterday it reached its highest levels in more than two years at the levels of 109.50 against a basket of currencies.
Its rise came against the backdrop of a more hawkish Fed and a resilient US economy.
It seems that the strength of the dollar will remain here for the time being in early 2025, especially with high US bond yields, in addition to the upcoming Trump administration policies that will make the US dollar more attractive.
Before the inauguration of US President-elect Trump on January 20, markets reacted to his imminent return to office with caution due to the political uncertainty surrounding him and also about his plans to impose heavy tariffs on imports, tax cuts and restrictions on immigration, which in turn has given the dollar additional support as a safe haven.
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The euro is among the biggest losers against the strong dollar, having fallen by 0.85% in the previous session to the lowest level in more than two years near the levels of 1.0225 dollars.
There may be a direct impact of higher tariffs on the eurozone or its economies, but perhaps more important is the higher tariffs on China, which will also act as a weakening of the eurozone.
However, the currency rose slightly today as a correction to this decline.
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Similarly, the British pound fell by 1.16% on Thursday, as the dollar dominated most currencies with the possibility of widening interest rate differentials between the United States and the rest of the countries.
With traders now pricing in the equivalent of just 45 basis points of interest rate cuts by the Fed this year, they see more than 100 basis points of easing by the European Central Bank, and about 60 basis points by the Bank of England.
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As for the yen, it is not far from its lowest level in more than five months, which it recorded last December.
The Japanese currency has been a victim of the stark difference in interest rates between the United States and Japan for more than two years, and with the Bank of Japan now also warning about further interest rate increases, this could mean more pain for the yen.
The yen fell by more than 10% in 2024, for the fourth consecutive year of losses for the yen against the US dollar.
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In Australia, the Australian dollar rose 0.2%, but remained very close to its lowest level in more than two years.
