On Tuesday (December 31, 2024), the US dollar index hit a two-year high of 108.59 as the Federal Reserve maintained interest rates higher than other central banks. As of now, the US dollar is quoted at 108.37.
Director of the South Korean Public Prosecutions Office: Yoon Seok-yeol will be arrested within the validity period of the arrest warrant. Many senior staff members of Yoon Seok-yeol collectively resigned to South Korea's Acting President Choi Sang-mok, but Choi Sang-mok refused to accept the resignation petition.
Many senior staff members of Yoon Seok-yeol collectively resigned to South Korea's Acting President Choi Sang-mok, but Choi Sang-mok refused to accept the resignation petition.
Iran will hold a new round of talks with Britain, France and Germany on January 13.
Israeli Defense Minister Katz: If Hamas does not allow the release of Israeli hostages from Gaza in the near future, it will suffer a huge blow in Gaza that has not been seen for a long time.
Honduras President: If Trump expels immigrants from the country on a large scale, he may ask the United States to withdraw its troops.
The won-dollar exchange rate fell 14% to 1472.50 in 2024 and may weaken further in 2025, reaching 1500. "The Fed's slowing pace of rate cuts and escalating trade tensions could put more depreciation pressure on the won," said Min Joo Kang, an economist at ING. Kang added that political instability in South Korea and the widening difference between U.S. and South Korean government bond yields are also factors. She expects the currency pair to close at 1475 in the first quarter, 1500 in the second quarter, 1450 in the third quarter and 1425.00 in the fourth quarter.
Although the Reserve Bank of Australia kept its base rate unchanged at 4.35% throughout the year, the Australian dollar fell below the 2023 low of 0.6270, and the Reserve Bank of Australia may maintain its current policy in the coming months as potential inflation remains high. However, Australia may face pressure to shift gears amid a fragile recovery in Asia. The Reserve Bank of Australia may begin to adjust its forward guidance as it acknowledges weak output. The AUD could face more resistance in 2025 if RBA Governor Bullock is ready to adopt a less restrictive policy.
Technically, AUD/USD hit a new yearly low by the end of 2024, while pushing the weekly RSI to its lowest level since 2022. It is expected that the AUD/USD may try to test the 2022 low of 0.6170 as it continues to make a series of lower highs and lows on the weekly level. Once it breaks and closes below the 23.6% Fibonacci retracement level of 0.6130, it will open the door to the April 2020 low of 0.5980.
On the other hand, the lack of momentum for the AUD/USD to test the 2022 low may keep the RSI in the oversold zone. But it needs the price to return above the 78.6% retracement level of 0.6380 to the 50% retracement level of 0.6410 for the AUD/USD to break the bearish structure.
First, it is important to acknowledge that euro-dollar parity is possible, but this could have serious consequences, as a weaker euro and stronger dollar would make economic growth, as well as U.S. stock market returns, more challenging. When the dollar rises strongly in 2022, global stock markets will perform poorly, which is not in the best interest of any major central bank. Ideally, currencies will maintain a degree of stability that allows companies to focus on their mission goals rather than trying to constantly balance changing currency prices. And, because globalization is so closely tied to the U.S. economy, it is almost impossible for stocks and the dollar to rise at the same time in 2025.
The November rally in both markets came against the backdrop of Trump's victory, and a similar interaction occurred in his 2016 election, but the dollar's strength did not last long in 2017, and even though the Federal Reserve raised interest rates three times that year, each by 25 basis points, the dollar continued to fall at the start of 2018.
So while we have to acknowledge the possibility of trend continuation, I think the more desirable outcome for most stakeholders is a mean reversion in EUR/USD. In this case, the December highs and lows are important as bears were unable to push below the November support at 1.0333. Above 1.05 will be key as bulls need to recapture previous range support, after which the 1.0611 Fibonacci level will come into play, which should help the euro stay high in the second half of the year.
The dollar strengthened as the Fed minutes and Powell's hawkish comments pushed front-end yields sharply higher. The market now expects about 1.5 rate cuts of 25 basis points per day throughout 2025. We think this expectation may ultimately be too conservative, but for now it helps support the dollar.
The ECB hinted at further rate cuts in the next few meetings, the BoE's decision showed a larger-than-expected vote in favor of rate cuts, and the BoJ's dovish comments will further increase the risk of divergent trading in the FX market.
In addition to the risk of year-end position adjustment, we believe that the risk of EUR/USD testing parity in the first quarter is increasing, while the Japanese Ministry of Finance may need to intervene to prevent the yen from continuing to depreciate. All this, plus Trump may act quickly and announce trade tariffs on Inauguration Day or later.