By Naomi Rovnick and Ankur Banerjee
LONDON, SINGAPORE (Reuters) – The U.S. dollar was headed for an almost 7% annual gain while Japan’s yen was set for a fourth consecutive year of losses on Friday, as traders anticipated robust U.S. growth would make the Federal Reserve cautious on rate-cutting well into 2025.
The dollar index, which measures the currency against major rivals, rose 0.08% to 108.06 to approach a 2.2% monthly rise and was on course to close 2025 6.6% higher.
The dollar was also nearing a 5.5% gain this month against the yen and an 11.8% advance for 2024 against the weakened Japanese currency, while the euro stayed close to two-year lows.
Fed Chair Jerome Powell said earlier this month that U.S. central bank officials “are going to be cautious about further cuts” after an as-expected quarter-point rate reduction.
The U.S. economy also faces the impact of President-elect Donald Trump, who has proposed deregulation, tax cuts, tariff hikes and tighter immigration policies that economists view as both pro-growth and inflationary.
Traders, meanwhile, anticipate the Bank of Japan will keep its monetary policy settings loose and the European Central Bank will deliver further rate cuts.
The yen on Friday hovered around levels last seen in July, at 157.75 per dollar, while the euro traded at $1.042, just above a low of about $1.04 struck on Dec. 18.
Traders are pricing in 37 bps of U.S. rate cuts in 2025, with no reduction fully priced into money markets until June, by which time the ECB is expected to have lowered its deposit rate by a full percentage point to 2% as the euro zone economy slows.
The BoJ held back from a rate hike this month. Governor Kazuo Ueda said he preferred to wait for clarity on Trump’s policies, underscoring rising angst among central banks worldwide of U.S. tariffs hitting global trade.
For now, the dominance of U.S. equities in world indices and weaker currencies in Asia and Europe helping to boost exporters have prevented tighter U.S. monetary policy from weighing on global stocks.
MSCI’s broad global share index traded 0.1 higher on Friday to remain 1.5% higher for the week, with Wall Street’s S&P 500 on course for a 1.8% weekly gain.
Futures trading indicated the S&P would start the New York session about 0.4% lower.
MSCI’s broadest index of Asia-Pacific shares outside Japan was heading for a 1.5% weekly rise and Tokyo’s Nikkei closed the week 2% higher.
European stocks lagged, with the Stoxx 600 flat on Friday and 0.3% higher this week.
Analysts said stock markets could change direction as investors returned from holiday and reassessed the risks of elevated U.S. inflation under Trump for richly-valued Wall Street equities.
