The dollar remains strong, with the euro hovering near a two-year low.
- The US dollar edged higher in light holiday trading on Tuesday, maintaining its recent strength as markets adjusted to expectations of fewer Federal Reserve rate cuts in 2025.
- As of 04:25 ET (09:25 GMT), the Dollar Index, which measures the greenback against six major currencies, rose 0.1% to 107.905, hovering near its recently reached two-year high.
The dollar continues to see strong demand
The dollar has seen increased demand following the Federal Reserve’s hawkish stance on interest rates, as outlined in its recent policy meeting last week. The Fed projected only two 25 basis point rate cuts for 2025.
As a result, markets are now anticipating roughly 35 basis points of easing for the year, leading to a surge in US Treasury yields, which in turn has strengthened the dollar.
The two-year Treasury yield is currently at 4.34%, while the benchmark 10-year yield remains near a seven-month high of 4.59%.
As the year-end approaches, trading volumes are expected to decrease, with the trading week being shortened due to the holiday season.
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The euro is close to reaching a two-year low
In Europe, EUR/USD dropped 0.1% to 1.0396, approaching a two-year low, as the European Central Bank (ECB) is expected to reduce interest rates more aggressively than its US counterpart, given the eurozone’s ongoing struggle to achieve any growth.
Earlier this month, the ECB cut its key rate for the fourth time this year, and President Christine Lagarde stated earlier this week that the eurozone is “very close” to achieving the central bank’s medium-term inflation target.
Inflation in the eurozone stood at 2.3% last month, and the ECB anticipates it will return to its 2% target next year.
GBP/USD remained mostly unchanged at 1.2531, with the pound showing signs of weakness following data revealing that the UK economy stagnated in the third quarter. Additionally, a more dovish-than-expected split occurred last week, as Bank of England policymakers voted 6–3 to keep interest rates unchanged.
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