SINGAPORE: The dollar slipped on the last trading day of the year on Tuesday but was poised to clock strong gains in 2024 against almost all currencies as investors prepared for fewer US rate cuts and the incoming Trump administration.
The dollar's ascent, buoyed by rising Treasury yields, pushed the yen towards its lowest levels since July on Monday at around 158 per dollar.
The US currency fell against the yen on Tuesday, however, and was last down 0.14 per cent at 156.65 yen. Nonetheless, the yen was on course for a 10 per cent drop in 2024, its fourth straight year of decline against the dollar.
Japanese markets are closed for the rest of the week and with most markets closed on Wednesday for the New Year's Day holiday, volumes are likely to be razor thin.
The dollar index, which measures the US currency versus six other major units, was down 0.12 per cent at 107.92, just off a two-year high. The index has risen 6.6 per cent in 2024 as traders have cut back on bets of deep rate cuts next year.
Federal Reserve policymakers shocked markets earlier this month by cutting their interest-rate forecast for 2025 to 50 basis points of cuts, from 100 bps, wary of stubbornly high inflation. President-elect Donald Trump has also moved the dollar.
"Yields in the US have adjusted higher to price in the potential inflationary impact from the incoming Trump administration’s policy agenda including tariff hikes, tighter immigration policy and maintaining loose fiscal policy," said Lee Hardman, senior currency analyst at MUFG.
The possibility of US rates staying higher for longer has put a dent in most other currencies, especially those in emerging markets as traders worry about the stark interest rate difference between the United States and other economies.
The euro is set for a 5.6 per cent decline against the dollar this year, with traders expecting the European Central Bank to be sharper with its cuts than the Fed.
On Tuesday, the single currency was 0.14 per cent higher at $1.0421, but remained close to the two-year low of $1.03315 touched in November.
In another turbulent year, the yen breached multi-decade lows in late April and again in early July, sliding to 161.96 per dollar and spurring bouts of intervention from Tokyo.
It then touched a 14-month high of 139.58 in September before giving up those gains and is now back near 157, with traders watching out for signs of intervention from Tokyo.
The Bank of Japan held interest rates steady at this month's meeting, and governor Kazuo Ueda said the central bank was scrutinising more data on wages and awaiting clarity on Trump's policies.
"The BoJ have expressed more caution over continuing to raise rates," MUFG's Hardman said.
A Reuters poll taken earlier this month showed the BOJ could raise rates by end-March and interest rates markets are pricing in only a 40 per cent chance of a rate rise in January.
Sterling was little changed at $1.2555 in early trading, on course for a 1 per cent fall in 2024, the strongest performance of any major currency against the dollar this year.
The risk-sensitive Australian and New Zealand dollars were tentative on the day, sticking close to their two-year lows. The Aussie last fetched $0.6219, set for a drop of around 8.7 per cent this year, its weakest yearly performance since 2018.
The kiwi was at $0.563, poised for a decline of nearly 11 per cent in 2024, its softest performance since 2015.
In cryptocurrencies, bitcoin rose 2 per cent to $93,848, well below the record high of $108,379.28 it touched on December 17. The world's best known and biggest cryptocurrency is set for a bumper 120 per cent rise for the year. — Reuters
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