SINGAPORE Dec 27 — The US dollar headed towards an almost 7 per cent annual gain today and Japan’s yen for a fourth consecutive year of losses as traders anticipated robust US growth would make the Federal Reserve cautious on rate-cutting well into 2025.
The dollar index, which measures the currency against major rivals, rose 0.08 per cent today to 108.16 to approach a 2.2 per cent monthly rise and was on course to close the year 6.6 per cent higher.
The dollar was also nearing a 5.5 per cent gain this month against the yen and an 11.8 per cent advance for 2024 against the weakened Japanese currency, while the euro stayed close to two-year lows.
Federal Reserve Chair Jerome Powell said earlier this month that US central bank officials “are going to be cautious about further cuts” following an as-expected quarter-point rate reduction.
The US economy also faces the impact of President-elect Donald Trump taking office later this month. He has proposed deregulation, tax cuts, tariff hikes and tighter immigration policies that economists view as both pro-growth and inflationary.
Traders, meanwhile, anticipate the Bank of Japan will keep its monetary policy settings loose and the European Central Bank will deliver further rate cuts.
The yen today hovered around levels last seen in July, at 157.76 per dollar, while the euro traded at US$1.042, just above a low of about US$1.04 struck on December 18.
Traders are pricing in 37 bps of US rate cuts in 2025, with no reduction fully priced into money markets until June, by which time the ECB is expected to have lowered its deposit rate by a full percentage point to 2 per cent as the euro zone economy slows.
The BoJ held back from a rate hike this month. Governor Kazuo Ueda said he preferred to wait for clarity on Trump’s policies, underscoring rising angst among central banks worldwide of US tariffs hitting global trade.
For now, the dominance of US equities in world indices and weaker currencies in Asia and Europe helping to boost exporters have prevented tighter US monetary policy from weighing on global stocks.
MSCI’s broad global share index traded flat today to remain 1.6 per cent higher for the week, with Wall Street’s S&P 500 on course for a 1.8 per cent weekly gain.
MSCI’s broadest index of Asia-Pacific shares outside Japan was heading for a 1.5 per cent weekly rise and Tokyo’s Nikkei closed the week 2 per cent higher.
European stocks lagged, with the Stoxx 600 flat today and 0.3 per cent higher this week.
Analysts said stock markets could change direction as investors returned from holiday and reassessed the risks of elevated US inflation under Trump for richly-valued Wall Street equities.
“Credible reasons for excitement (are) balanced by elevated valuations and a host of unknowns. (We) would not be surprised to see (the) Trump rally fade, even if temporarily,” Gabelli Funds portfolio manager John Belton said in a note to clients.
In debt markets, higher US rate expectations pulled the 10-year Treasury yield, which rises as the price of the fixed income security falls, to its highest since early May today, at 4.607 per cent.
The two-year Treasury yield, which tracks interest rate forecasts, traded around 4.33 per cent. US debt trends also sent euro zone yields higher, with Germany’s benchmark 10-year bund yield rising 5 basis points (bps) to 2.372 per cent today.
Elsewhere in markets, gold prices dipped 0.2 per cent to US$2,628 per ounce, set for about a 28 per cent rise for the year and the strongest yearly performance since 2011 as geopolitical and inflation concerns boosted the haven asset.
Oil prices were little changed but set for a weekly rise as investors awaited news of economic stimulus efforts in China, the world’s biggest oil importer. Brent crude futures inched 0.1 per cent higher to US$72.52 a barrel. — Reuters
