Written by Uncle Banerjee
SINGAPORE (Reuters) – The yen hovered near its lowest in more than five months as investors contemplated a prolonged stay in U.S. interest rates, ending 2025 on Thursday after a solid year against most currencies. The US dollar was shaky at the start of 2020 trading. .
Market focus at the beginning of the year will be on the incoming Trump administration and its policies, which are widely expected to not only boost growth but also increase price pressures. This will support US Treasury yields and boost dollar demand.
Large interest rate differentials between the United States and other countries have weighed on foreign exchange markets over the past year, causing most currencies to plummet against the dollar in 2024.
The same goes for the yen, which depreciated more than 10% in 2024, marking its fourth year of decline. The first trading day of 2025 was little changed at 157.10 to the dollar, not far from the five-month low hit on Tuesday, with traders wary of intervention from Japanese authorities.
Japanese markets are closed for the rest of the week.
The dollar index, which measures the U.S. currency against six other currencies, fell 0.2% to 108.32 on Thursday, but remained close to a two-year high hit on Tuesday. The index rose 7% in 2024 after traders significantly reduced their expectations for a rate cut.
“The US dollar is likely to maintain its pole position (this year) given its still high yields, US exceptionalism, and safe-haven appeal in uncertain times,” said Charles Chanana, chief investment strategist at Saxo. ” he said.
Slower economic growth prospects outside the US, geopolitical tensions in the Middle East and the Russia-Ukraine war are driving demand for dollars.
The euro rose 0.11% to $1.0366 on Thursday, after falling more than 6% in 2024. Traders are expecting further rate cuts from the European Central Bank in 2025, with the market pricing in 113 basis points of easing, compared to 42 basis points of rate cuts starting in 2025. Central bank of the United States.
The latest value of the pound was $1.2519. Despite falling 1.7% last year, it was still the best performing G10 currency against the dollar, in part because the UK economy fared better than widely expected.
The Chinese yuan slumped to a 14-month low as concerns about the health of the world's second-largest economy, the Trump administration's outlook for U.S. import tariffs and falling domestic yields weighed on investor sentiment. [CNY/]
The onshore yuan depreciated by 2.8% against the dollar in 2024, the third consecutive year of decline, but rebounded from a low of 7.31 to the dollar. Traders said this could reflect authorities' desire to contain the currency's decline before Donald Trump returns to the White House.
