During today's Asian trading, the US dollar declined slightly against major currencies, offsetting yesterday's increase, but remained near a two-year high. Meanwhile, volumes were light with a holiday for the New Year looming.
The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) fell by 0.16% to 107.96. Since the beginning of 2024, the index has grown by about 6.5%, driven by the shifting expectations around Fed rates and the widening interest rate difference between the US and the other economies. In 2025, investors' attention will focus on the Fed's interest rate trajectory after policy makers predicted only two rate cuts earlier in December due to persistently high inflation. According to the CME FedWatch Tool, markets see an 11.2% probability of a 0.25% rate cut in January (compared to 8.6% a week ago), while the probability of an additional rate cut in March is 48.4%. Markets are also preparing for Donald Trump's policy of loosening regulations, lowering taxes, higher tariffs and tougher immigration, that are expected to be both pro-growth and inflationary.
The yen rose 0.4% against the US dollar, but has fallen by more than 10% since the beginning of the year. The euro has consolidated against the US dollar, and is preparing to record an annual drop of almost 6%.
The Chinese yuan fell 0.3% against the US dollar amid mixed Chinese data. The National Bureau of Statistics of China said that private sector activity rose to its highest level since March in December, driven by fiscal stimulus and loose monetary policy. According to the report, the composite PMI increased to 52.2 from 50.8 in the previous two months. The acceleration of growth was driven by the third straight month of growth in factory activity and the strongest expansion in nine months for the service sector. The manufacturing PMI dipped slightly to 50.1 from 50.3 in November, below analysts' expectations (50.3). Meanwhile, the non-manufacturing PMI rose sharply - to 52.2 from 50.0, exceeding forecasts (50.2).