Global Markets Update: Dollar Retreats but Holds Weekly Gains Amid Fed Optimism

By Cot-Trading - Friday, January 3, 2025 - No Comments

Dollar Pulls Back Slightly but Secures Weekly Gains

The US dollar experienced a minor setback on Friday but remains positioned for a strong weekly performance. Expectations of the US economy outperforming others, along with fewer anticipated Federal Reserve rate cuts, have bolstered the greenback's strength this week.

As of early Friday morning, the Dollar Index, which gauges the greenback against six major currencies, was down 0.3%, trading at 108.90. This slight decline comes after the index hit a two-year high in the previous session. Nevertheless, it’s poised to close the week with a robust 1% gain—the best in over a month.

Resilient US Economy

Stronger-than-expected manufacturing data for December, reported by S&P Global, has further fueled optimism about the US economy. Later on Friday, markets will focus on the ISM Manufacturing PMI, expected to dip slightly to 48.2 from November's 48.4. This would mark the eighth consecutive month below the critical 50-point threshold, signaling contraction.

Additionally, traders are eyeing next week’s US jobs report and the upcoming Federal Reserve meeting later in January. Analysts from ING suggest that the dollar’s dominance will remain unless significant economic surprises shift market sentiment.

Euro Attempts a Comeback Amid Weekly Losses

The euro made a modest recovery, edging up 0.2% to 1.0282, following a sharp decline of nearly 1% the previous day. German unemployment figures for December, which were better than expected, provided some relief. However, the euro is on track for a hefty weekly loss of 1.5%, its worst performance since November, as weaker eurozone manufacturing data weighed heavily on the currency.

The European Central Bank is expected to implement more rate cuts this year, with markets pricing in at least 100 basis points of easing.

Pound Recovers Slightly

Similarly, the British pound rose 0.2% to 1.2406 after falling over 1% on Thursday. Despite the minor recovery, the currency is set to end the week with a 1.4% loss. The Bank of England’s cautious approach, following inflationary pressures last year, has left markets expecting approximately 60 basis points of rate cuts in 2025.

Yuan Weakens Amid PBOC Rate Cut Reports

In Asia, the Chinese yuan faced additional pressure, with USD/CNY climbing 0.7% to 7.3523. This marks the yuan’s weakest level since September 2023. Reports from the Financial Times suggest the People’s Bank of China plans further rate cuts in 2025 as part of a pivot toward a single benchmark rate. This shift comes after previous liquidity measures failed to revitalize China’s economy.

Other Currency Movements

The Japanese yen traded lower against the dollar, with USD/JPY down 0.2% at 157.18, retreating from a five-month high seen in December. The Australian dollar (AUD/USD) edged up 0.2%, while the South Korean won (USD/KRW) and Indian rupee (USD/INR) displayed relative stability.

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