As traders expected strong US growth to make the Fed cautious on rate-cutting far into 2025, the US dollar headed toward a nearly 7% annual gain on Friday, while Japan’s yen saw its fourth consecutive year of losses. The dollar index, which compares the currency’s value to its main competitors, increased 0.08% on Friday to 108.16, coming close to a 2.2% monthly increase and setting the stage for a 6.6% year-end gain.
While the euro remained at two-year lows, the dollar also approached a 5.5% gain this month against the yen and an 11.8% gain for 2024 against the weakening Japanese currency.
After an anticipated quarter-point rate decrease earlier this month, Federal Reserve Chair Jerome Powell stated that US central bank officials “will be cautious about further cuts. The inauguration of President-elect Donald Trump later this month will also influence the U.S. economy. Economists consider his proposed deregulation, tax cuts, tariff hikes, and stricter immigration laws as both inflationary and pro-growth.
Meanwhile, traders expect the European Central Bank to continue lowering interest rates and the Bank of Japan to maintain current monetary policy settings. Friday saw the euro trade at $1.042, barely above a low of roughly $1.04 hit on December 18, while the yen stayed around levels last seen in July, at 157.76 per dollar.
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