Market focus early in the year will be on the incoming Trump administration and its policies that are widely expected to not only boost growth but also add to price pressure.
That will underpin US Treasury yields and boost dollar demand.
A wide interest rate difference between the US and other economies has cast a shadow over the foreign exchange market over the past year, resulting in most currencies declining sharply against the dollar in 2024.
None more so than the yen, which slid more than 10% in 2024 for its fourth year of decline.
It was little changed on the first trading day of 2025 at 157.10 per dollar, not far from the five-month low touched on Tuesday, keeping traders wary of intervention from Japanese authorities.
Markets in Japan are closed for the rest of the week.
The dollar index, which measures the US currency against six others, eased 0.2% to 108.32 today but remained close to the two-year high touched on Tuesday.
The index rose 7% in 2024 as traders drastically cut back rate-cut expectations.
“The US dollar is likely to remain in pole position (this year) given its still-high yield, US exceptionalism and its safe-haven appeal in uncertain times,” said Saxo chief investment strategist Charu Chanana.
Weaker growth outlook outside the US, geopolitical tension in the Middle East and the Russia-Ukraine war have added to demand for the dollar.
The euro was 0.11% higher at US$1.0366 today after dropping more than 6% in 2024.
Traders anticipate deeper interest rate cuts from the European Central Bank (ECB) in 2025, with markets pricing in 113 basis points of easing versus 42 bps of cuts priced in from the US central bank.
Sterling last fetched US$1.2519. It fell 1.7% last year but was nevertheless the best-performing G10 currency versus the dollar, mainly as the British economy held up better than was widely expected.
China’s yuan languished at 14 month lows as worries about the health of the world’s second-biggest economy, the prospect of US import tariffs from the Trump administration and sliding local yields weighed on investor sentiment.
After falling 2.8% against the greenback in 2024 for its third consecutive year of loss, the onshore yuan bounced from lows of 7.31 per dollar.
Traders said that could reflect authorities’ desire to rein in the currency’s slide before Donald Trump returns to the White House.
The Australian and New Zealand dollars both drifted away from the two-year lows touched on Tuesday.
The Aussie was 0.36% higher at US$0.6215 having dropped 9% in 2024, its weakest yearly performance since 2018.
The kiwi clocked an 11.4% decline last year, its softest performance since 2015. Today, it rose 0.52% to US$0.5617.