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The U.S. dollar strengthened on Monday, recovering from sharp losses late last week. Signs of cooling inflationary pressures in the U.S. eased concerns about aggressive rate cuts in 2025, while the euro slipped amid dovish remarks by European Central Bank President Christine Lagarde.
- Dollar Index (DXY): Up 0.4%, trading at 107.750, after falling from a two-year high on Friday.
Dollar Recovers from Inflation-Driven Retreat
The greenback rebounded following Friday’s dip, spurred by the Federal Reserve’s preferred inflation gauge showing smaller-than-expected monthly price increases.
- Core inflation rose at its slowest pace in six months, sparking optimism that the Fed might take a measured approach to rate cuts in 2025.
- Market Expectations: Traders are pricing in 38 basis points of rate cuts next year, with the first easing projected in June 2025, rather than March.
Thin trading volumes are expected this week as the festive season approaches.
Lagarde: Eurozone “Very Close” to Inflation Goal
The euro weakened, with EUR/USD falling 0.1% to 1.0414, near its November two-year low.
- ECB President Christine Lagarde: The eurozone is nearing its 2% inflation target. Further rate cuts are expected if inflation continues to ease.
- The ECB recently reduced rates for the fourth time this year, signaling more cuts in 2025 if inflation stabilizes.
GBP/USD Flat Amid UK Growth Stagnation
The British pound traded largely flat at 1.2571 after disappointing GDP data confirmed the UK economy failed to grow in Q3 2024.
- The ONS revised GDP growth for Q3 to 0.0% (down from 0.1%) and for Q2 to 0.4% (from 0.5%).
- The Bank of England’s latest vote to hold rates showed a 6-3 split, reflecting rising concerns over economic slowdown.
Yuan Hits One-Year High as BOJ and China Outlook Weigh
In Asia:
- USD/JPY rose 0.2% to 156.72, after peaking at 158 last week. The Bank of Japan’s dovish tone has signaled delayed rate hikes, potentially as late as March 2025.
- USD/CNY edged 0.2% higher to 7.3080, hitting a one-year high. Concerns over China’s economic outlook linger, despite anticipated fiscal spending and monetary easing in 2025 to support growth.
The mixed macroeconomic outlook and central bank signals highlight the global economy’s uncertain path as 2024 draws to a close.
