In the Asian session on Thursday, the US dollar index hovered above the 108 mark, as the European and American markets coincided with the Christmas holiday and the market trading was relatively light. However, the changes in the number of initial jobless claims in the United States will still be released this trading day, and investors need to pay attention to it. In addition, investors need to pay attention to news related to the geopolitical situation.
US dollar: As of press time, the US dollar index hovered around 108.17, and the US dollar index (DXY) was above 108.00, very close to a two-year high. From a broader perspective, the US dollar remains on a solid foundation. Expectations of a slower pace of interest rate cuts by the Federal Reserve over the next year continue to support the dollar. Federal Reserve officials are signaling a more cautious approach to rate cuts, a shift influenced by a slower-than-expected deflationary process and continued uncertainty about new policies under President-elect Donald Trump. The Fed's latest forecasts indicate that the federal funds rate may fall to 3.9% by the end of 2025, suggesting multiple rate cuts next year, but lower than market expectations before last week's decision. Technically, on the upside, the trendline originating from December 28, 2023 is acting as a moving ceiling. The next firm resistance is at 109.29, which is the peak on July 14, 2022 and has a good track record as a key level. Once this level is crossed, the 110.00 round level comes into play. The first downside barrier is at 107.35, which has now turned from resistance to support. The second level that may be able to stop any selling pressure is 106.52.
Euro: As of press time, EUR/USD is hovering around 1.0396. With the slowing economic recovery and the improvement of inflation indicators, the European Central Bank is likely to continue to maintain a dovish stance and further ease monetary policy in 2025. The ECB cut interest rates by 25 basis points in December 2024 and said that "inflation is continuing to move closer to the medium-term target of 2%". At the same time, the ECB may accelerate policy easing due to the slowdown in economic recovery. ECB President Lagarde pointed out that some members of the Council have even discussed the possibility of a 50 basis point rate cut, which indicates that the ECB may accelerate the pace of policy adjustments in the future. Technically, the euro hit an annual low against the dollar (1.0333) in November 2024 and is still below the level before the US election. Analysts believe that if the euro fails to break through key resistance levels (such as 1.0410), it may continue to face downward pressure, and the target may be pointed to the 1.0200 range or even lower. However, if the euro can stand above 1.0610, it may rise back to the 1.0870-1.0940 area.
GBP: As of press time, GBP/USD remains volatile, with expectations of gradual rate cuts by the Federal Reserve weighing on the dollar. Looking at the economic calendar, initial jobless claims will be released on Thursday, with new claims expected to fall slightly to 218K. This could bring some volatility to the dollar. However, despite these factors, the pound remains vulnerable, having broken below a key upward sloping trendline around 1.2600 and showing signs of possible further downside. Later, in the first week of January, the US non-farm payrolls data for December will be closely watched. Technically, GBP/USD continues to face significant downward pressure. In addition, the relative strength index (RSI) has fallen below the 40.00 mark, which would increase the likelihood of further downward momentum if it remains below this level. In addition, the Moving Average Convergence Divergence (MACD) prints red bars, indicating the presence of bears. On the downside, the next support for GBP/USD is around 1.2300. On the upside, if the pair can reclaim the 1.2600 mark, it could be a recovery, and this level will be a key point to watch for any potential upward momentum.
Data released by the U.S. Department of Labor on December 19 showed that the number of initial claims for state unemployment benefits fell by 22,000 to 220,000 in the week ending December 14, seasonally adjusted. Economists forecast 230,000. Earlier in the previous two weeks, the number of initial unemployment claims increased by 27,000. The number of claims has entered a period of volatility, and the data may fluctuate sharply. The unemployment report showed that the number of continuing unemployment claims, which reflects hiring, fell by 5,000 in the week ending December 7, and was 1.874 million after seasonal adjustment.
The market currently expects 224,000 initial unemployment claims in the week ending December 21, and the market also expects 1.88 million continuing unemployment claims in the week ending December 14.
The US dollar held firm in light holiday trading on Tuesday, closing at 108.11, not far from the two-year high of 108.54 set last Friday. In the Asian market on Wednesday, the US dollar index is currently trading around 108.11. The dollar has risen more than 7% since the end of September, partly due to growing expectations that the U.S. economy will accelerate under the policies of President-elect Trump, while persistently high inflation has curbed market expectations for how aggressively the Federal Reserve will cut interest rates.
These expectations for the United States contrast sharply with the growth forecasts and interest rate views of other economies and central banks around the world, leading to a widening interest rate gap. The Fed's more cautious rate cut path expected last week than the market expected has once again boosted U.S. Treasury yields, with the 10-year Treasury yield hitting a seven-month high of 4.630% during trading on Tuesday. A rise in the U.S. Treasury yield, which was generally regarded as the risk-free rate 10 years ago, would dampen the attractiveness of gold.
The euro fell as markets expected the European Central Bank would need to cut rates sharply due to weak economic growth and political turmoil in Europe, said Ipek Ozkardeskaya, an analyst at Swiss online bank, in a report. French President Emmanuel Macron formed a new government on Monday under Francois Bayrou, the fourth prime minister he has appointed this year. Ozkardeskaya said in the report that even the "heavyweights" announced in the new cabinet would find it difficult to convince the divided government to agree on a budget deal aimed at narrowing France's budget deficit.
The median forecast for the Fed's interest rate in 2025 is only a 50 basis point cut, but the Canadian Business Economics Association (BCA) expects more cuts. BCA analysts said in a report that inflation is likely to be lower than the Fed's 2025 forecast, while unemployment may be higher than the Fed's 2025 forecast. "As a result, more than 50 basis points of easing will be needed," they said. The Fed predicts that the unemployment rate will be 4.3% by the end of 2025, "which requires a significant improvement in the momentum of the labor market, and we think that this trend change is unlikely to happen."
Deutsche Bank analysts said in a report that historically, European stocks have risen by an average of about 20% in the 12 months after the first interest rate cut by the ECB, which is a good sign for 2025. European stocks are currently slightly lower than the level when the ECB began to cut interest rates in June. Therefore, Deutsche Bank is optimistic about its prospects. "After six months of basically flat stock markets and the increasing likelihood of further accelerated rate cuts by the ECB, we believe that the market will begin to return to historical patterns," analysts said.