Dollar set for big annual gain as traders brace for high US rates


Dollar index set for 6.6% rise in 2024

World stocks notch 1.6% weekly gain in thin trade

Yen at five-month lows in fourth year of declines

Hawkish Fed keeps euro near two-year lows

By Naomi Rovnick and Ankur Banerjee

LONDON, SINGORE Dec 27 – The U.S. dollar headed towards an almost 7% annual gain on Friday and Japan’s yen for a fourth consecutive year of losses as traders anticipated robust U.S. 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% on Friday to 108.16 to approach a 2.2% monthly rise and was on course to close the year 6.6% higher.

The dollar was also nearing a 5.5% gain this month against the yen and an 11.8% 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 U.S. central bank officials “are going to be cautious about further cuts” following an as-expected quarter-point rate reduction.

The U.S. 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 on Friday hovered around levels last seen in July, at 157.76 per dollar, while the euro traded at $1.042, just above a low of about $1.04 struck on Dec. 18.

Traders are pricing in 37 bps of U.S. 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% 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 U.S. tariffs hitting global trade.

For now, the dominance of U.S. equities in world indices and weaker currencies in Asia and Europe helping to boost exporters have prevented tighter U.S. monetary policy from weighing on global stocks.

MSCI’s broad global share index traded flat on Friday to remain 1.6% higher for the week, with Wall Street’s S&P 500 on course for a 1.8% weekly gain.

MSCI’s broadest index of Asia-Pacific shares outside Japan was heading for a 1.5% weekly rise and Tokyo’s Nikkei closed the week 2% higher.

European stocks lagged, with the Stoxx 600 flat on Friday and 0.3% higher this week.

Analysts said stock markets could change direction as investors returned from holiday and reassessed the risks of elevated U.S. inflation under Trump for richly-valued Wall Street equities.

“Credible reasons for excitement balanced by elevated valuations and a host of unknowns. would not be surprised to see Trump rally fade, even if temporarily,” Gabelli Funds portfolio manager John Belton said in a note to clients.

In debt markets, higher U.S. 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 on Friday, at 4.607%.

The two-year Treasury yield, which tracks interest rate forecasts, traded around 4.33%. U.S. debt trends also sent euro zone yields higher, with Germany’s benchmark 10-year bund yield rising 5 basis points to 2.372% on Friday.

Elsewhere in markets, gold prices dipped 0.2% to $2,628 per ounce, set for about a 28% 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% higher to $72.52 a barrel.

This article was generated from an automated news agency feed without modifications to text.

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