By Ankur Banerjee
SINGAPORE (Reuters) – The dollar was firm on the final trading day of the year, poised to clock strong gains in 2024 against most currencies as investors braced for fewer U.S. rate cuts and Trump administration policies that coming in
The dollar's ascent, boosted by rising Treasury yields, has pushed the Yen towards its lowest levels since July, when the Japanese authorities last intervened. On Tuesday, it was at 157.02 per dollar, on course for a 10% drop in 2024, its 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 the New Year's Day holiday, volumes are likely to be razor thin.
That has left the dollar index, which measures the US currency against six other major units, at 108.06, not far from the two-year high it touched this month. The index has risen 6.6% in 2024 as traders cut back on bets of deep rate cuts next year.
The Federal Reserve shocked markets earlier this month by cutting its interest rate forecast for 2025 to 50 basis points of cuts, from 100 basis points, wary of stubbornly high inflation.
However, Goldman Sachs strategists expect three rate cuts from the Fed next year, confident that inflation will continue to trend lower.
“We see the risks to interest rates from the policies of the second Trump administration as more bilateral than widely assumed,” they said in a note.
The dollar has also been boosted by expectations President-elect Donald Trump's policies of looser regulation, tax cuts, tariff hikes and tighter immigration will promote growth and inflation and keep US output high.
“While the markets' initial reaction to Trump's re-election to the White House back in November was jubilant, they now appear to be analyzing the incoming administration's priorities more carefully,” said Gary Dugan , chief executive officer in the Global CIO Office.
DOLLAR CONNECTIONS
The prospect of US rates staying higher for longer has dented most other currencies, particularly those in emerging markets as traders worry about the rate differential clear interest between the United States and other economies.
The euro is set for a 5.7% decline against the dollar this year, with traders expecting the European Central Bank to be more cautious with its cuts than the Fed. On Tuesday, the single currency was steady at $1.04025, but remained close to the two-year low of $1.03315 it touched in November.
In what turned out to be another turbulent year, the Yen broke multi-decade lows in late April and again in early July, sliding to 161.96 per dollar and triggering bouts of intervention from Tokyo.