By Rae Wee

SINGAPORE (Reuters)

The dollar is set to finish the week strongly, near a two-year high, supported by a hawkish outlook on U.S. rates. In contrast, the yen faces difficulties, hitting a new low.

After significant fluctuations in the previous session, currencies are stabilizing. The South Korean won fell to a 15-year low, the Canadian dollar hit its lowest in over four years, while the Australian and New Zealand dollars both reached two-year lows. Central banks across the globe, from Brazil to Indonesia, are taking measures to support their faltering currencies.

In the early Asian session on Friday, the yen weakened to a five-month low of 157.93 per dollar, pressured by the Bank of Japan's (BOJ) reluctance to raise rates. The BOJ maintained its interest rates and gave little indication of a future increase, contrary to some investors' expectations that recent hawkishness from the Federal Reserve would enable the BOJ to act.

Carol Kong, a currency strategist at Commonwealth Bank of Australia, believes the BOJ may raise rates slowly, with March likely for the next hike, while not dismissing a possible January increase.

Data on Friday revealed Japan's core inflation rose in November, influenced by food and fuel price hikes. Meanwhile, sterling fell to a one-month low of $1.2490 after the Bank of England voted 6-3 to keep rates unchanged, indicating a more dovish stance.

DOLLAR DOMINANCE

The greenback maintains its strength against other currencies, with the dollar index up 0.02% at 108.45. The dollar is projected to end the week with a 1.4% gain, supported by expectations for sustained higher U.S. rates. Investors are now anticipating less than 40 basis points of cuts for 2025.

Upcoming core PCE price data, a key inflation measure for the Fed, could further influence the U.S. economic outlook and the dollar's movement.

The euro was trading at $1.03635, facing a weekly drop of 1.3% due to the dollar's strength, while sterling is down 0.96%. The yen is projected to decline over 2.5% this week, marking its worst performance since September.

Additionally, the Australian and New Zealand dollars are struggling, with the Aussie down 0.23% at $0.6223 and the kiwi down 0.28% to $0.5616, both set for weekly falls exceeding 2%.