The U.S. dollar ended 2024 with significant gains against most global currencies, supported by higher Treasury yields and reduced expectations for aggressive Federal Reserve rate cuts. Despite slipping slightly on the final trading day, the dollar’s strength reflected investor caution ahead of economic policies under President-elect Donald Trump’s administration. The dollar index, which measures the greenback against six major currencies, edged down 0.12% on Tuesday to 107.92 but remained near its two-year high.
For 2024, the index climbed 6.6% as traders adjusted forecasts for fewer rate cuts next year. The Federal Reserve lowered its 2025 interest-rate cut projections earlier this month, signaling a more measured approach amid persistent inflation concerns. Against the Japanese yen, the dollar fell 0.14% to 156.65 yen on Tuesday. However, the yen recorded a 10% annual drop, marking its fourth straight year of declines as Japan’s central bank maintained a cautious stance on raising rates.
With Japanese markets closed for the rest of the week and light trading volumes expected during the New Year holiday, further fluctuations remain possible. Market analysts attributed the dollar’s resilience to expectations of inflationary pressures from Trump’s proposed economic policies, including potential tariff hikes, tighter immigration rules, and expansionary fiscal measures. Lee Hardman, senior currency analyst at MUFG, noted that U.S. yields have already priced in these inflationary risks, bolstering the dollar’s appeal.
Emerging market currencies and the euro came under pressure due to the strong dollar and higher U.S. interest rates. The euro fell 5.6% for the year, despite a modest 0.14% uptick to $1.0421 on Tuesday. Traders anticipate the European Central Bank may pursue deeper rate cuts than the Fed, further weakening the euro’s outlook. The Bank of Japan’s reluctance to tighten policy significantly also weighed on the yen. After hitting multi-decade lows of 161.96 per dollar earlier this year, the yen briefly recovered before sliding again.
Bank of Japan Governor Kazuo Ueda emphasized the need for more wage and inflation data before making rate decisions, leaving markets uncertain about the pace of future adjustments. The British pound closed the year down 1% at $1.2555, making it the strongest performer among major currencies against the dollar. Meanwhile, the Australian and New Zealand dollars faced sharper declines, with the Aussie falling 8.7% to $0.6219 – its worst performance since 2018 – and the kiwi dropping 11% to $0.563, its weakest since 2015. – By MENA Newswire News Desk.