Dollar Dips But Stays Near Two-Year High Amid Growth Concerns and Global Woes

The U.S. dollar remained close to a two-year high on Friday, despite a slight dip, driven by investor expectations that the growth gap between the U.S. and other economies will continue to widen. Meanwhile, Chinese blue chips experienced their largest weekly decline since 2022, adding to global economic concerns.

• Dollar Index: The index, which tracks the dollar against six other currencies, reached its highest level since November 2022 on Thursday.
• Euro: The euro fell to $1.02248, its lowest point since 2022, before rebounding slightly to $1.0297, up 0.3% on Friday.
• Pound and Yen: Both currencies hit multi-month lows as the dollar’s strength persisted.

U.S. Dollar’s Rally

The dollar surged late last year as investors anticipated that President-elect Donald Trump’s policies would spur U.S. growth and inflation. This expectation fueled bets on fewer interest rate cuts from the Federal Reserve and higher yields on U.S. Treasuries, in contrast to European central banks that are expected to continue rate cuts.

• U.S. Treasuries: The 10-year Treasury yield was at 4.543%, down 3 basis points on Friday, but the dollar remained strong due to concerns about weaker growth elsewhere.

Wholesale Gas Prices in Europe

European wholesale gas prices surged to their highest levels in 14 months, driven by falling temperatures, low gas storage levels, and the end of a longstanding agreement between Russia and Europe to supply gas via Ukraine. These factors added pressure to European stocks, which fell 0.26% on Friday, though oil and gas shares rose by 0.9%.

• European Stocks: The fall in European equities was partly due to a decline in U.S. markets on Thursday, where major benchmarks ended lower. Tesla’s 6.1% drop, following its first annual drop in deliveries, contributed to the bearish sentiment.

Concerns About China’s Economic Growth

Growth concerns in China weighed heavily on global markets, with the country’s blue chip index plunging 5.2% this week—its largest weekly loss since October 2022.

• Chinese Yuan: The yuan slipped past the 7.3 per dollar mark, hitting a 14-month low due to weak Chinese yields, rate cut expectations, and fears of potential tariffs under the incoming Trump administration.
• Chinese Bond Yields: Yields on 10-year and 30-year Chinese government bonds weakened by about 3 basis points, reaching record lows as investors flocked to safer assets.

Summary

The U.S. dollar maintained its strength as investors bet on continued growth in the U.S. and fewer rate cuts by the Federal Reserve, contrasting with economic struggles in Europe and China. Despite some market rebounds, concerns about weak Chinese economic growth, a strong U.S. dollar, and geopolitical uncertainties weighed on global stock markets.