Investing.com - The US dollar edged lower Thursday as traders eased into the new year, but the greenback remained near the two-year high seen earlier in the week and was likely to stay supported near term given the more hawkish Fed stance and expectations for the incoming Donald Trump administration.
At 04:45 ET (09:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 108.215, but remained close to the two-year high touched on Tuesday.
Dollar to remain in demand in 2025
The index rose 7% in 2024 as traders drastically cut back Fed rate-cut expectations in the wake of the projections of the policymakers after the December policy-setting meeting.
The US central bank projected just two 25 bp rate cuts in 2025 at its last policy meeting of the year, a sharp reduction from the four cuts it had indicated in September.
In fact, markets are currently only pricing in 42 bps of cuts from the US central bank in 2025, with the return of Donald Trump to the White House adding a degree of uncertainty given his policies of looser regulation, tax cuts, tariff hikes and tighter immigration are seen as both pro-growth and inflationary.
Focus turns to the release later in the session of weekly jobless numbers as well as the December S&P Global manufacturing PMI number, for clues towards the strength of the US economy.
Euro could be heading for parity vs dollar
In Europe, EUR/USD edged 0.1% higher to 1.0364, after dropping more than 6% in 2024.
Data released earlier Thursday showed that manufacturing activity in the eurozone declining at a faster rate at the end of the year, offering scant signals of an imminent recovery.
HCOB's final eurozone manufacturing Purchasing Managers' Index, compiled by S&P Global (NYSE:SPGI), dipped to 45.1 in December, with the downturn broad-based as the bloc's three largest economies - Germany, France and Italy - were stuck in an industrial recession.
Traders expected more interest rate cuts from the European Central Bank in 2025, with markets pricing in 113 basis points of easing, much more than the Federal Reserve.
This divergence in Fed & ECB policy “will push the euro to parity vs the dollar in the course of 2025,” said analysts at ABN Amro, in a note.
GBP/USD traded 0.2% lower to 1.2494, having fallen 1.7% last year, but was nevertheless the best-performing G10 currency versus the dollar.
UK house prices rose in December, according to mortgage lender Nationwide, jumping by 0.7% in monthly terms during December, following a 1.2% increase in November.
The resilience of the UK housing market has surprised many given indications of weakening activity across the wider economy, with prices ending the year 4.7% higher than their level of December 2023, up from 3.7% in November - the highest annual growth rate since late 2022.
The Bank of England held interest rates unchanged last month after consumer prices rose above target, and this central bank is likely to remain more cautious than its eurozone counterpart in 2025.
Slowing Chinese manufacturing growth
In Asia, USD/CNY rose 0.4% to 7.3265, climbing to its highest level in over a year after Caixin PMI data showed that the country’s manufacturing sector grew less than expected in December.
The reading came just days after government PMI data also showed weaker-than-expected growth in the manufacturing sector.
The prints ramped up concerns over a slowing economic recovery in China, with recent stimulus measures having provided only limited support.
USD/JPY traded 0.3% lower to 156.82, slipping slightly after surging to a five-month high of nearly 158 in recent sessions on the back of a mostly dovish outlook for 2025 from the Bank of Japan.