The US Dollar Index (DXY) is poised to finish the week strong, trading at approximately 108.45, marking a 1.4% weekly gain and nearing a two-year high. This surge is largely attributed to a hawkish outlook on U.S. interest rates, with investors anticipating a 25-basis-point cut from the Federal Reserve in its upcoming meeting [8da48e1f].
In contrast, the Japanese yen has fallen to a five-month low of 157.93 per dollar. This decline follows the Bank of Japan's decision to keep rates unchanged on December 18, 2024, with Governor Kazuo Ueda providing vague guidance on potential future hikes. Japan's core inflation accelerated in November, further complicating the central bank's position [8da48e1f].
The dollar's strength has also impacted other currencies, with the euro trading at $1.03635 and the British pound slipping to $1.2490. The Australian dollar is currently at $0.6223, while the New Zealand dollar has dropped to $0.5616, reflecting a broader trend of currency weakness against the dollar [8da48e1f].
Additionally, the dollar reached new highs against the Australian and New Zealand currencies, with the Australian dollar falling to a one-year low and the New Zealand dollar hitting a two-year low. The dollar's performance is further reflected in U.S. 10-year yields, which have reached one-month highs around 4.4% [2ed68f4b].
As the Federal Reserve prepares for its next meeting, Fed Chair Jerome Powell's comments will be critical in shaping future monetary policy. Analysts are closely monitoring the divergence in monetary policies between the Fed and other central banks, particularly the Bank of Japan and the Bank of England, which is expected to maintain its current rates [2ed68f4b]. The mixed economic data, including a services sector PMI of 58.5 and a manufacturing PMI of 48.3, adds complexity to the outlook for the dollar [2ed68f4b].