The dollar is heading for its best weekly performance since November

The dollar is on track to record its best weekly performance in more than a month today, supported by expectations of interest rate cuts at a slower pace this year and analyzes indicating that the US economy will continue to outperform competing economies.

The dollar began the new year with a strong performance by reaching, yesterday, Thursday, the highest level in more than two years at 109.54 points against a basket of currencies, continuing a wonderful rise that has continued since last year.

The rise in the US currency is due to the Federal Reserve (the US central bank) tightening its monetary policy as well as the strength of the economy.

“The strength of the dollar appears to be continuing at the beginning of the new year as the story of American exceptionalism continues,” said Charu Chanana, investment strategist at Saxo Bank.

She went on to say: “In addition to the uncertainty about the policies of the next (Donald) Trump administration, you also get the safety factor represented by the attractiveness of the dollar.”

Before the inauguration of US President-elect Donald Trump on January 20, markets treated his imminent return to office with caution in light of the uncertainty about his plans to impose large tariffs on imports, tax cuts, and restrictions on immigration.
This in turn gave the dollar additional support as a safe haven.

Greater weekly gain

The dollar index recorded 109.17 points, on its way to achieving a weekly gain of more than one percent, its strongest gain since November.

The euro was among the biggest losers against the dollar, after it fell 0.86 percent in the previous session to its lowest levels in more than two years at $1.022475.

“With regards to the eurozone, there may be a direct impact of higher tariffs on the eurozone or its economies, but perhaps more important is higher tariffs on China, which would also serve as a weak spot,” said Kyle Rodda, senior financial markets analyst at Capital.com. in the euro area.

The euro recorded $1.0270 in the latest transactions, and the single European currency is heading towards a weekly decline of 1.6 percent, which is the worst since November.

The British pound rose 0.09 percent to $1.2391, after falling 1.16 percent yesterday, Thursday, heading towards a loss of about 1.6 percent during the week.

Strengthening the dominance of the dollar

Expectations of a widening difference between US interest rates and the rest of the world also contributed to helping the dollar strengthen its dominance against other currencies.

Markets now expect the US central bank to reduce borrowing costs by only 45 basis points this year, while they expect the European Central Bank to reduce them by more than 100 basis points and the Bank of England to reduce them by approximately 60 basis points.

The yen rose 0.14 percent to 157.295 against the dollar, but it was not far from the lowest level in more than five months at 158.09, which it recorded in December.

The Japanese currency has been a victim of the large interest rate differential between the United States and Japan for more than two years now, with the Bank of Japan warning that raising interest rates would lead to more pressure on the currency.

The yen fell by more than 10 percent in 2024, continuing its losses for the fourth year in a row.

The Australian dollar rose 0.2 percent to 0.6216 US dollars, but it remains close to the lowest level in two years and is on track to decline 0.2 percent this week.

The New Zealand dollar advanced 0.16 percent to 0.5606 US dollars, but it is heading to record a weekly loss of 0.66 percent.