By Ankur Banerjee
SINGAPORE (Reuters) – The dollar was firm on the last trading day of the year and poised to post strong gains against most currencies in 2024 as investors prepared for fewer U.S. interest rate cuts and the incoming Trump administration -government.
The dollar’s rise, supported by rising government bond yields, has pushed the yen to its lowest level since July, when Japanese authorities last intervened. On Tuesday it was at 157.02 per dollar, on track for a 10% decline in 2024, the 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 New Year’s Day, volumes are likely to be razor thin.
That leaves the dollar index, which measures the U.S. currency against six other major units, at 108.06, not far from a two-year high reached this month. The index is up 6.6% in 2024 as traders cut back on bets on deep rate cuts next year.
The Federal Reserve shocked markets earlier this month by cutting its 2025 interest rate forecasts from 100 basis points to 50 basis points, amid fears of persistently high inflation.
However, Goldman Sachs strategists expect three Fed rate cuts next year, confident that inflation will still be lower.
“We view the risks to interest rates from the policies of the second Trump administration as more bipartisan than generally perceived,” they said in a note.
The dollar has also been boosted by expectations that President-elect Donald Trump’s policies of looser regulations, tax cuts, tariff increases and tighter immigration will be both pro-growth and pro-inflation and will keep US interest rates high.
“While markets’ initial reaction to Trump’s re-election to the White House in November was euphoric, they now appear to be analyzing the new administration’s priorities more carefully,” said Gary Dugan, CEO of Global CIO Office.
DOLLAR CASTS SHADOW
The possibility of U.S. interest rates staying higher for longer has dented most other currencies, especially those in emerging markets, as traders worry about the wide interest rate differential between the United States and other economies.
The euro is expected to fall 5.7% against the dollar this year, with traders expecting the European Central Bank to be sharper in its cuts than the Fed. On Tuesday, the common currency was steady at $1.04025, but remained close to a two-year low of $1.03315 reached in November.
In what proved to be another turbulent year, the yen breached multi-decade lows in late April and again in early July, falling to 161.96 per dollar, prompting interventions from Tokyo.