Investing.com – The U.S. dollar rose in thin trading due to the holiday Tuesday, continuing its recent strength as traders braced for a smaller Federal Reserve interest rate cut in 2025.
At 4:25 a.m. ET (9:25 p.m. Japan time), the dollar index against a basket of six other currencies was up 0.1% at 107.905, trading near its recent two-year high.
There is still demand for dollars
Demand for the dollar has increased since the Federal Reserve gave a hawkish interest rate outlook after its last policy meeting of the year last week, expecting only two 25 basis point rate cuts in 2025. is increasing.
In fact, markets are currently pricing in just 35 basis points of easing in 2025, sending Treasury yields soaring and pushing the dollar higher.
The yield on the two-year U.S. Treasury was last at 4.34%, while the benchmark 10-year Treasury yield hovered around 4.59%, its highest level in seven months.
“We believe the hawkish recalibration of the Fed's communications lays the foundation for sustained dollar strength into the new year,” ING analysts said in a note.
This week's trading week will be shortened due to the festive period, so volumes are likely to fade as the end of the year approaches.
Euro approaches two-year low
In Europe, the currency fell 0.1% to 1.0396, near a two-year low, as the euro zone struggles to record growth and plans to cut interest rates more quickly than its U.S. rivals.
Earlier this month, the ECB cut its key policy interest rate for the fourth time this year, and President Christine Lagarde said earlier this week that the eurozone was “very close” to meeting the central bank's medium-term inflation target.
“If future statistics confirm our criteria, the direction is clear and interest rates will be lowered further,” Lagarde said in a speech in Vilnius.
Inflation in the euro zone was 2.3% last month, and the ECB expects inflation to settle at its 2% target next year.
The pound was trading almost flat at 1.2531, but there were signs of weakness after data showed Britain's economy failed to grow in the third quarter, with Bank of England policymakers last week The split was more dovish than sterling, as they voted 3-3 to keep interest rates unchanged. Expected.
The Bank of Japan's stance attracts attention
In Asian markets, the currency fell 0.1% to 157.03 yen, after rising as high as 158 yen in recent trading, following hints that further interest rate hikes would be considered over time.
Expectations of increased fiscal spending and monetary easing next year weighed on the currency, which rose 0.1% to 7.3021, staying close to a one-year high.
The Chinese government has signaled it will increase fiscal spending in 2025 to support slowing economic growth.
