U.S. Dollar Edges Higher Amid Policy Expectations

By Karen Brettell
NEW YORK (Reuters) – The U.S. dollar edged higher on Thursday on expectations that policies from the incoming Donald Trump administration will boost growth and lift inflation next year.

Trading volumes were light on Thursday with many traders on holiday following Wednesday’s Christmas holiday, as the New Year holiday approaches.

Looser business regulations and tax cuts are expected to propel U.S. growth next year. Analysts note that a clamp-down on illegal immigration and the potential for new tariffs on trading partners could raise price pressures, affecting the economy in the long term.

This optimism has strengthened the dollar against its peers, although there is considerable uncertainty surrounding the specifics of the policies and their potential impacts.

Increasing doubts about the Federal Reserve's ability to implement numerous interest rate cuts in the coming year have further fueled the dollar rally over recent weeks. Last week, the U.S. central bank cut rates by 25 basis points as anticipated, with Fed Chair Jerome Powell stating that future reductions depend on progress in lowering persistently high inflation rates.

Fed policymakers have raised their inflation projections for 2025 while reducing their interest rate forecast to 50 basis points for the year, down from 100 basis points.

Currently, money market traders are anticipating 35 basis points of cuts next year, indicating a less than 50% chance of a second 25 basis point reduction.

Data released on Thursday showed that the number of Americans filing new applications for jobless benefits fell to a one-month low last week, which aligns with a cooling yet robust U.S. labor market.

Moreover, U.S. retail sales increased by 3.8% between November 1 and December 24, as retailers heavily promoted their products leading up to a competitive holiday shopping season, prompting last-minute consumer purchases.

As of the last update, the dollar index was up 0.13% at 108.25, remaining just below a two-year high of 108.54 reached on Friday.

The euro dipped 0.06% to $1.0398, having fallen to $1.03435 on Friday, marking its lowest level since November 22.

The greenback rose 0.31% to 157.89 Japanese yen, peaking at 157.93 on Friday, the highest rate since July 17.

Bank of Japan Governor Kazuo Ueda indicated that the economy is progressing towards sustainably achieving the central bank's 2% inflation target next year, hinting that the timing of its next interest rate increase may be near.

In cryptocurrency news, bitcoin dropped 2.78% to $95,688.00.