The US dollar hit new multi-month highs against the euro and pound on Thursday, the first trading day of 2025. The gains were driven by expectations that US interest rates will remain high relative to other countries.
The euro fell as low as $1.0314, its lowest since November 2022, down about 0.3% on the day. Since its peak in late September above $1.12, the euro has fallen nearly 8%, becoming one of the main victims of the US dollar's surge.
Traders expect the European Central Bank (ECB) to cut interest rates aggressively in 2025, with markets expecting at least four 25 basis point cuts. Meanwhile, the US Federal Reserve's (Fed) course of action on interest rates remains uncertain, with two rate cuts or less.
The pound also fell, down 0.65% to $1.2443, its lowest since April, with a faster decline after breaking through the $1.2475 support level.
Analysts expect US President-elect Donald Trump's dovish economic policies to boost growth and price pressures, prompting the Fed to be more cautious in cutting interest rates and maintaining demand for the US dollar.
In addition, weaker growth prospects outside the US, conflicts in the Middle East, and the Russia-Ukraine war have also strengthened demand for the US dollar.
The US dollar also rebounded against the Japanese yen, rising 0.17% to 157.26. At the same time, pressure could mount on the Bank of Japan (BOJ) to raise interest rates early this year if the dollar/yen breaks through the 160 level.
