He global dollar rose broadly on Monday, holding near a two-year high, while the japanese yen rose from five-month lows against the greenback as traders continued to digest the likelihood of fewer rate cuts from the Federal Reserve next year.
The dollar index is on track for a 6.6% gain this year, after rising 0.1% on the session to 108.08 after hitting a two-year high of 108.54 on December 20. December, as reported by Reuters.
The US currency has rallied in recent weeks on expectations of a Federal Reserve (Fed) less expansive, since inflation remains above the annual target of 2%. Analysts also expect that the policies of the president-elect’s administration donald trump in USA drive growth and increase price pressures next year.
“Despite paid forecasters almost universally predicting a weaker US dollar in 2024, the currency appears on track to close the year higher against all major currencies,” said Chris Weston, head of research at Pepperstone.
On the other hand, the yen has suffered a wide interest rate differential between Japan and the United States. The dollar is on track for an 11.4% return against the Japanese currency this year, its fourth annual gain. Finally, it lost 0.51% and stood at 157.02 yen.
Some analysts believe the yen is likely to benefit next year from the Bank of Japan’s expected interest rate hikes as the Fed eases monetary policy, but as U.S. Treasury yields continue to rise, this is not yet has been reflected in the exchange rate.
The japanese yields remain remarkably low and recent comments have cast doubt on the commitment of the Bank of Japan (BoJ) to raise rates. The BoJ kept interest rates steady at 0.25% at this month’s meeting and the governor Kazuo Ueda He said the central bank was looking at more data on next year’s wage boost and clarity on the incoming US administration’s economic policies.
Traders are watching for any possible intervention by Japanese officials to prop up the currency if it continues to weaken, as they have done several times this year.
A market limited by holidays
The poor liquidity year-end kept other currencies in tight ranges. He euro is headed for a 5.8% drop against the dollar this year, after the European Central Bank to cut interest rates four times in 2024 and with markets expecting it to adopt a faster pace with rate cuts than the Fed in 2025. Lastly, it was down 0.25% at $1.0401.
The ECB’s next interest rate cut could take longer to come after a recent spike in inflation, ECB member said Governing Council of the ECB Robert Holzmann, quoted on Saturday.
Source: Ambito
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