Investing.com – The US dollar rose in thin holiday-impacted trade Tuesday, retaining recent strength as traders prepared for fewer Federal Reserve rate cuts in 2025.

At 04:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 107.905, near the recently hit two-year high.

Dollar remains in demand

The dollar has been in demand since the Federal Reserve outlined a hawkish outlook for its interest rates after its last policy meeting of the year last week, projecting just two 25 bp rate cuts in 2025.

In fact, markets are now pricing in just about 35 basis points of easing for 2025, which has in turn sent US Treasury yields surging, boosting the dollar.

The two-year Treasury yield last stood at 4.34%, while the benchmark 10-year yield steadied near a seven-month high at 4.59%. 

“We think this hawkish re-tuning of the Fed’s communication will lay the foundation for sustained dollar strengthening into the new year,” said analysts at ING,in a note.

Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.

Euro near to two-year low

In Europe, fell 0.1% to 1.0396, near a two-year low, with the set to cut interest rates more rapidly than its US rival as the eurozone struggles to record any growth.

The ECB lowered its key rate earlier this month for the fourth time this year, and President Christine Lagarde said earlier this week that the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.

“If the incoming data continue to confirm our baseline, the direction of travel is clear and we expect to lower interest rates further,” Lagarde said in a speech in Vilnius.

Inflation in the eurozone was 2.3% last month and the ECB expects it to settle at its 2% target next year.

traded largely flat at 1.2531, with sterling showing signs of weakness after data showed that Britain’s economy failed to grow in the third quarter, and with Bank of England policymakers voting 6-3 to keep interest rates on hold last week, a more dovish split than expected.

Bank of Japan stance in focus

In Asia, fell 0.1% to 157.03, after rising as high as 158 yen in recent sessions, after the signaled that it will take its time to consider more interest rate hikes. 

edged 0.1% higher to 7.3021, remaining close to a one-year high as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency. 

Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth. 

Investing.com– Most Asian currencies moved in a tight range on Tuesday, while the dollar extended overnight gains as traders positioned for a slower pace of interest rate cuts in the coming year. 

Trading volumes were muted before the Christmas break, while most regional currencies were nursing steep losses against the greenback for the year.

Asian currencies weakened sharply last week after the Federal Reserve effectively halved its outlook for rate cuts in 2025, citing concerns over sticky U.S. inflation. 

Dollar near 2-year high on hawkish rate outlook

The and both rose about 0.1% in Asian trade, extending overnight gains and coming back in sight of a two-year high hit last week. 

While the greenback did see some weakness after data read lower than expected for November, this was largely offset by traders dialing back expectations for interest rate cuts in 2025.

The Fed signaled only two rate cuts in the coming year, less than prior forecasts of four.

Higher U.S. rates diminish the appeal of risk-driven Asian markets, limiting the amount of capital flowing into the region and pressuring regional markets. 

Asia FX pressured by sticky US rate outlook 

Most Asian currencies weakened in recent sessions on the prospect of slower rate cuts in the U.S., while uncertainty over local monetary policy and slowing economic growth also weighed.

The Japanese yen’s pair fell 0.1% on Tuesday after rising as high as 158 yen in recent sessions, after the Bank of Japan signaled that it will take its time to consider more interest rate hikes. 

The Australian dollar’s pair fell 0.2% after the minutes of the Reserve Bank’s December meeting showed policymakers saw an eventual easing in monetary policy, citing some progress in bringing down inflation. But they still flagged potential upside risks for inflation. 

The Chinese yuan’s pair rose 0.1% and remained close to a one-year high, as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency. 

Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth. 

The Singapore dollar’s pair rose 0.1%, while the Indian rupee’s pair rose 0.1% after hitting record highs above 85 rupees.

Investing.com– Most Asian currencies were lower on Thursday as the dollar remained steady near a two-year high, while the Indian rupee fell to an all-time low.

Most markets in the region were closed on Wednesday for Christmas.

The was largely steady, while the ticked lower in Asian trade on Thursday.

Asian currencies weakened sharply last week after the Federal Reserve projected fewer rate cuts in 2025, citing concerns over sticky U.S. inflation. 

Indian rupee hits record low, dollar remains near 2-yr high

The Indian rupee fell to an all-time low against the U.S. dollar, with the  pair hitting a record peak of 85.497 rupees with a 0.2% fall on Thursday. The pair had breached the 85 rupee mark last week.

The Chinese yuan’s onshore pair edged higher on Thursday. Chinese authorities have decided to issue a record-breaking 3 trillion yuan ($411 billion) in special treasury bonds next year, in an intensified fiscal effort to stimulate a struggling economy, Reuters reported on Tuesday.

The Singapore dollar’s  pair rose 0.1%, while the Australian dollar’s pair fell 0.2%.

The South Korean won’s pair rose 0.4%, while the Philippine peso’s pair fell more than 1%, bucking the regional trend.

The U.S. dollar has shown notable strength in recent months, supported by a combination of domestic and global factors. 

One key driver has been the Federal Reserve’s monetary policy stance, which, despite earlier rate cuts, has shifted to maintaining higher interest rates for 2025 with projections of only two cuts.

Additionally, expectations of potential tariffs under the incoming Donald Trump administration have led to projections of higher inflation and robust economic performance, further boosting the dollar’s appeal.

With expectations of the dollar remaining strong, the outlook for Asian currencies has become more clouded amid global uncertainties.

Japanese yen muted amid rate hike bets

The Japanese yen’s pair was largely unchanged on Thursday.

Japan’s government is preparing a record $735 billion budget for the fiscal year starting in April, driven by rising social security and debt-servicing expenses, according to a draft obtained by Reuters.

BOJ Governor Kazuo Ueda said on Wednesday that the economy is expected to make progress toward sustainably reaching the central bank’s 2% inflation target next year, hinting that an interest rate hike could be approaching.

The Bank of Japan ended negative interest rates in March and increased its short-term policy rate to 0.25% in July. It has indicated a willingness to raise rates further if wage and price trends align with its forecasts.