The dollar advances at the beginning of 2025 as US interest rate expectations change

The US dollar started 2025 with notable gains, supported by shifts in US monetary policy direction and new interest rate expectations. These developments came in light of major economic and political changes, which enhanced the attractiveness of the green currency and sparked the interest of global markets in its future path, according to what was reported by the global “Yahoo Finance” website.

Changes in US monetary policy

In December 2024, the Federal Reserve lowered interest rates by 0.25%, to a range of 4.25%-4.5%. However, the bank indicated the possibility of only two additional cuts in 2025, instead of the four previously expected, reflecting greater caution towards ongoing inflation.
Read also: Why did the dollar remain near the highest level in two years? What are his expectations in 2025?

The impact of new economic policies

With US President-elect Donald Trump taking office, all eyes are on prospective economic policies, such as imposing tariffs and increasing infrastructure spending. These policies may boost domestic demand, adding inflationary pressures that could influence the Fed’s future interest rate decisions.

The impact of this on global markets

A rising dollar affects global markets, as it makes dollar-denominated goods more expensive for investors in other currencies. Changes in US monetary policy may also prompt other central banks to reevaluate their policies to keep pace with economic transformations.
Read also: Changes in interest rate expectations of major central banks during 2025

The dollar and the foreign exchange market

In addition to its gains against major currencies, the rise of the dollar increased pressure on emerging market currencies, as a large number of them fell due to the strength of the US currency. This change negatively affected developing economies that depend on borrowing in dollars, which raised the cost of debt service and increased the economic challenges these countries face at the beginning of the new year.
Future expectations

As changes in monetary and economic policy continue, the dollar is expected to remain strong through 2025. However, any new developments in US policies or the global economy may impact this outlook.