The US dollar got 2025 off to a strong start on Thursday, after a year of strong gains against most currencies, with the yen sliding to its lowest level in more than five months as investors questioned whether the US interest rates higher for longer.
The market's focus at the start of the year will be on the new Trump administration and its policies which are expected to not only boost growth but also increase price pressure, supporting US Treasury yields and boosting demand for dollars.
The wide interest rate gap between the United States and other economies has cast a shadow over the currency market, leading to a sharp decline in most currencies against the dollar in 2024.
This is the case of the yen, which fell by more than 10% for the fourth year in a row. It weakened on the first day of 2025 to 157.54 per dollar, not far from the five-month low reached on Tuesday, prompting traders to be wary of intervention by Japanese authorities. .
Japanese markets are closed for the rest of the week.
The Dollar Index, which measures the US currency against six others, was at 108.53 in early trading, close to the two-year high hit on Tuesday. The index increased by 7% in 2024.
“The US dollar is likely to remain in pole position (this year) given its continued high yield, American exceptionalism and safe-haven appeal in due course,” said Charu Chanana, chief investment strategist at Saxo .
Weaker growth prospects outside the United States, geopolitical tensions in the Middle East and the war between Russia and Ukraine have strengthened demand for the dollar.
The euro remained stable at $1.0353 after falling more than 6% in 2024. Traders anticipate deeper interest rate cuts from the European Central Bank in 2025 as markets anticipate easing of 113 basis points, compared to 42 basis points for the American central bank.
Sterling last hit $1.2519. It fell 1.7% last year, but was nonetheless the best-performing G10 currency against the dollar, mainly because the UK economy held up better than widely expected.
The Australian and New Zealand dollars both started the year higher, but remain near two-year lows hit on Tuesday. The Aussie was up 0.1% at $0.6199 after falling around 9.2% in 2024, its weakest annual performance since 2018.
The kiwi saw a decline of 11.4% last year, its weakest performance since 2015. On Thursday, it rose 0.27% to $0.5603.
