On Monday, the US dollar index continued to hover at a two-year high as the market expected Trump to relax regulations, reduce taxes, increase tariffs and tighten immigration policies after taking office. As of now, the US dollar is quoted at 107.96.
Brazil's central bank has taken action to support its currency, but it has still depreciated by 22% this year.
Three days after taking office, South Korea's new acting president Choi Sang-mok was investigated by the police. Fannie Mae and Freddie Mac rose 40%, and the boss said that the two houses are expected to be released from custody in Trump 2.0.
In memory of the late former President Carter, major US exchanges will be closed on January 9, the bond market will close early, and the federal government will be closed for one day.
The US dollar index recently hit a two-year high and continued to show an upward trend on the price chart. In fact, the rise of the US dollar index can be traced back to 2008. It is worth noting that the trend market in the currency market is often stronger and more persistent than other markets. Although the current rise in the US dollar index is already mature, there are no early technical indicators that it has reached its peak. In addition, the recent hawkish shift of the Federal Reserve is also expected to become one of the factors supporting the continued rise of the US dollar index in 2025.
But it should be noted that US economic growth may encounter some difficulties in 2025, including the prospect of continued inflation and any tariff policies initiated by the Trump administration, which may become obstacles to US economic growth. But the US dollar is still expected to become the "general among the short men" among the G10 currencies and will remain one of the safest currencies in the world. Therefore, supported by its safe-haven properties, any new geopolitical turmoil is likely to attract safe-haven funds to flow into the US dollar. In the new year, major non-US currency pairs may continue to face selling pressure.
But most importantly, I think that in 2025, the sensitivity of gold and silver to the rise of the US dollar in the foreign exchange market will decrease, which means that the strength of the US dollar index may no longer be one of the main factors limiting the rise in gold and silver prices in the new year. If we look at the time dimension, this trend has become particularly obvious in recent years, because gold, like the US dollar index, has maintained a long-term upward trend.
The European and American currencies have been trying to find a direction since the Fed's decision in December. The European and American currencies have tried to rebound to around 1.05, but selling pressure still exists, limiting further gains. Last week's price fluctuations limited the European and American currencies between 1.0440 and 1.0380, and a breakthrough in this range is needed to provide some clues for the next trend. However, this week's market is similar to last week. Due to the New Year's Day holiday and market liquidity issues, the current market situation is still weak. The short-term support level of the European and American currencies is 1.0400. If it falls below, the market will focus on the previous low of 1.0380. On the upside, 1.0500 will become a key area of concern. If the 1.0500 level is successfully broken, it may bring further gains, which means a change in structure and may allow bulls to dominate.
Resistance level reference: 1.0440, 1.0500, 1.0600
Support level reference: 1.0400, 1.0380, 1.0331
The minutes of the Bank of Japan's December meeting showed that the discussion on the timing of the interest rate hike was quite intense, and several Bank of Japan officials advocated a rate hike in December, which contrasted with the cautious words of the central bank governor Kazuo Ueda last week. This also led to a slight rebound in the yen after it fell to its lowest point since July last Thursday. In addition, after the release of the minutes, the interest rate market believed that the probability of a rate hike in January 2025 was 42%, and the bet on a rate hike by March had reached 72%.
If the Bank of Japan raises interest rates in January next year, it will support the yen, thereby reducing the possibility of government intervention in the exchange rate. On the other hand, a weaker yen will push up import prices, increase living costs, and curb private consumption. If the Bank of Japan signals that it will support a rate hike in January, it may push the USD/JPY back to around 155, but if future comments are dovish, it may push the USD/JPY up to 160.
Speculation about the timing of the Bank of Japan's rate hike continues to dominate the price trend of the dollar against the yen. The interest rate gap between the United States and Japan is clearly favorable to the dollar, and there is no sign that this situation will change. Although the Bank of Japan's support for a rate hike in the first quarter of 2025 is increasing, the response from the United States and Japan has been relatively muted. It is expected that the policies that President-elect Trump may introduce to promote US economic growth will increase US debt pressure in 2025 and push US Treasury yields to a 7-month high. In contrast, the Bank of Japan has not yet made clear its plans to raise interest rates in 2025.
Bank of Japan Governor Kazuo Ueda recently said that the Bank of Japan needs more wage growth data and time to assess the impact of Trump's policies on the US and global economy. The Bank of Japan may remain on the sidelines before the Spring Wage Negotiations (Haruto). However, data on the growth of some economic indicators (Tokyo's annual inflation rate, basic wages and Japan's service industry, etc.) support expectations of a rate hike in January 2025. According to a December Reuters poll, the market expects the Bank of Japan to raise interest rates to 0.50% by March next year. However, the minutes of the Bank of Japan's December meeting sent the most hawkish signal, with some central bank members advocating a rate hike in December.
In addition, the US house price index will affect the trend of the US dollar against the yen. Economists regard the US real estate market as a touchstone for the US economy. A weaker house price index may curb inflation in the housing services sector, thereby affecting consumer confidence, and a decline in consumer confidence may weaken consumer spending. The combination of the two may support the Fed's more dovish rate hike path, which in turn pushes the US dollar against the yen back to 155. Conversely, an unexpected rise in the house price index could push the exchange rate towards 160.