Dollar Strengthens on Trump Administration’s Pro-Growth Policies
As the world celebrates the holiday season, the US dollar is getting a boost from expectations of a growth spurt in 2025. The incoming Trump administration’s plans to cut taxes and relax business regulations are expected to propel the economy forward, lifting inflation and interest rates.
Light Trading Volumes Amid Holiday Season
Thursday’s trading volumes were thin, with many traders taking a break after Christmas and before the New Year’s holiday. Despite the lull, the dollar managed to edge higher, driven by optimism about the administration’s pro-growth agenda.
Growth and Inflation Expectations
Analysts believe that the Trump administration’s policies will lead to increased economic activity, which in turn will drive up prices. The prospect of new tariffs on trading partners and a crackdown on illegal immigration could also contribute to higher inflation. While there is still uncertainty about the exact policies and their impact, the dollar is benefiting from the positive sentiment.
Federal Reserve’s Interest Rate Outlook
The Federal Reserve’s recent decision to cut interest rates by 25 basis points has added to the dollar’s rally. However, rising doubts about the number of rate cuts the Fed will make next year have also contributed to the dollar’s strength. Money market traders are currently pricing in 35 basis points of cuts, implying a less than 50% chance of a second 25-basis-point reduction.
US Labor Market and Retail Sales
Data released on Thursday showed that the number of Americans filing new jobless claims dipped to a one-month low, indicating a still-healthy labor market. US retail sales also rose 3.8% between November 1 and December 24, driven by intense promotions during the holiday season.
Currency Markets
The dollar index was last up 0.13% at 108.25, holding just below a two-year high of 108.54 reached on Friday. The euro slipped 0.06% to $1.0398, while the greenback gained 0.31% to 157.89 Japanese yen. Bitcoin fell 2.78% to $95,688.00.
Central Banks’ Outlook
The Bank of Japan expects the economy to move closer to achieving its 2% inflation target next year, suggesting that the timing of its next interest rate increase is nearing. Meanwhile, the Federal Reserve’s policymakers raised their inflation projections for 2025 and cut their interest rate forecast to 50 basis points for the year.
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