The dollar strengthened against major currencies on the first trading day of 2025, fueled by expectations of persistent high U.S. interest rates.
The dollar reached new multi-month highs against the euro and the pound on Thursday, the first day of 2025 trading, as it continued its strong performance from the previous year. This is driven by expectations that U.S. interest rates will remain higher compared to other countries. The euro fell to $1.0314, its lowest point since November 2022, down about 0.3% for the day. It has declined nearly 8% since its peak in late September above $1.12. The pound also dropped 0.65% to $1.
2443, its lowest level since April. Traders anticipate significant interest rate cuts from the European Central Bank in 2025, with at least four 25 basis point reductions expected. However, there is less certainty about the U.S. Federal Reserve making even two such moves. Donald Trump's policies are anticipated to stimulate growth and increase inflationary pressure, leading the Fed to be cautious about cutting rates too aggressively. This will support U.S. Treasury yields and boost demand for the dollar. A weaker global growth outlook, conflicts in the Middle East and the Russia-Ukraine war have further contributed to the dollar's strength. The dollar also reversed an initial loss against the Japanese yen, rising 0.17% to 157.26. It reached a five-month high above 158 yen in late December, potentially pressuring the Bank of Japan to raise interest rates early this year
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