Investing.com – The US dollar has been on a tear since its late-September 2024 lows, and UBS thinks this near-term strength is likely to persist in the first half of the new year, with room to overshoot.

At 06:15 ET (11:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.5% lower, but has gained almost 4% over the course of the last year.

Better incoming US data (nonfarm payrolls and purchasing managers’ index)—and with it, US yields moving higher—have provided broad dollar support, analysts at UBS said, in a note.

Economic news elsewhere has been rather mixed, with growth prospects for Europe staying highly subdued. Accelerating growth in China suggests that there is growth outside the US. But with US tariff risks looming large, stronger activity in China is unlikely to shift investor sentiment and stall the USD rally, in our view.

In the near term, there seem to be limited headwinds holding the USD back, the Swiss bank added.

“US exceptionalism has appeared to reassert itself, with US economic data likely to stay strong in the near term and risks to US inflation moving higher again. The latest growth and inflation dynamics have lifted US growth and inflation expectations, which could allow the Fed to stay on hold in 2025.” 

At least in the short run markets are likely to think this way, while other key central banks are likely to cut rates further. 

The potential for monetary policy divergence is a powerful driver, which leads to trending FX markets and the potential for overshooting exchange rates. 

US tariffs are also looming large, weighing on sentiment. The concern on tariffs is that they will have inflationary consequences. Given inflation scarring is still fresh on investors’ minds, it is dominating market narratives.

“That said, we think that a policy rate of 4-4.5% in the US remains restrictive and is a headwind to economic growth and inflation. This is unlikely to change absent hard evidence that productivity is rising in the US, which may happen given developments in AI and associated investment,” the Swiss bank added.

It appears that the market-unfriendly parts of the new Trump agenda (e.g., tariffs, trade tensions, immigration) are easier to implement and more likely to happen before the market-friendly parts (e.g., tax cuts, deregulation). 

“We think a negative impact on US growth is not priced at all in the forex market, which cannot be said for the rest of the world, particularly Europe,” UBS said.

“Hence, we still think that 2025 could be a story of two halves—strength in 1H, and partial or full reversal in 2H. The fact that the USD is trading at multi-decade highs in strongly overvalued territory and that investor positioning (like speculative accounts in the futures market) is elevated underpin this narrative.”

Investing.com – The US dollar weakened Friday after US President Donald Trump indicated he would call for lower interest rates, while the euro surged after better than expected economic activity data.

At 04:35 ET (09:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.6% lower to 107.205, down more than 1% this week.

Dollar weakens on Trump comments 

The dollar has headed lower Friday after Trump, speaking online at the World Economic Forum in Davos, Switzerland, said he will call for lower interest rates from the Federal Reserve.

“I’ll demand that interest rates drop immediately,” he said, in a virtual address. “Likewise, they should be dropping all over the world. Interest rates should follow us all over.”

This probably suggests the pressure shouldn’t be felt just yet when the FOMC meets next week, said ING analysts, in a note. “We expect a decision to hold rates steady next week will not be the trigger of another round of USD longs unwinding.”

The US currency has been on the backfoot this week as widely expected tariff announcements from Trump failed to materialise after his inauguration. 

“This seems to feed into the growing sense that Trump is underdelivering on protectionism compared to pre-inauguration remarks, and that ultimately some of those tariff threats may not materialise as long as some concessions are made on trade,” said ING.

Euro gains on PMI data

In Europe, gained 0.8% to 1.0500, boosted by better than expected eurozone activity data for January, as the region returned to growth.

HCOB’s preliminary composite rose to 50.2 in January from December’s 49.6, nudging just above the 50 mark separating growth from contraction.

An index measuring the bloc’s dominant industry dipped to 51.4 from 51.6, but remained above breakeven, while the manufacturing PMI rose to 46.1, from a revised 45.1, still in contraction.

European Central Bank President is set to speak at Davos later in the session, having mentioned the need for gradual rate cuts earlier in the week, ahead of next week’s policy-setting meeting.

“With external uncertainty staying high and the prospects of European Central Bank cuts already factored in, the case for a rebound in the eurozone’s business confidence in the short term is not very compelling. This should ultimately allow the ECB to stick to the plan of taking rates towards 2% this year,” said ING.

traded 0.7% higher to 1.2436, receiving a boost after the January PMI data came in stronger than expected, adding to the hopes of gradual economic recovery.

The S&P Global’s preliminary rose to 50.9 in January from December’s 50.4, remaining in expansion territory.

BOJ meeting looms large

In Asia, traded 0.5% lower to 155.23, after the increased interest rates by 25 basis points earlier Friday, while projecting that inflation will stay supported and close to its annual target in the years ahead. 

The central bank indicated that it plans additional rate hikes if its economic outlook aligns with expectations in the coming months.

traded 0.7% lower to 7.2385, with the Chinese currency helped by the prospects of gradual imposition of US tariffs, with Trump sounding more conciliatory of late.

By Hannah Lang and Trevor Hunnicutt

(Reuters) -U.S. President Donald Trump on Thursday ordered the creation of a cryptocurrency working group tasked with proposing new digital asset regulations and exploring the creation of a national cryptocurrency stockpile, making good on his promise to quickly overhaul U.S. crypto policy.

The much-anticipated action also ordered that banking services for crypto companies be protected, alluding to industry claims that U.S. regulators have directed lenders to cut crypto companies off from banking services – something regulators deny. The order also banned the creation of central bank digital currencies in the U.S. which could compete with existing cryptocurrencies.

In another key action pushed for by the crypto industry, the U.S. Securities and Exchange Commission late on Thursday rescinded accounting guidance that had made it very expensive for some listed companies to safeguard crypto assets on behalf of third parties. The crypto industry said that guidance had stymied digital asset adoption.

On the campaign trail, Trump courted crypto cash by pledging to be a “crypto president” and promote the adoption of digital assets. That is in stark contrast to former President Joe Biden’s regulators which, in a bid to protect Americans from fraud and money laundering, cracked down on the industry, suing exchanges Coinbase (NASDAQ:), Binance and dozens more, alleging they were flouting U.S. laws. The companies deny the allegations.

Thursday’s order was cheered by the crypto industry, which had been pushing for the new administration to send a strong signal of support in Trump’s first few days in office.

“Today’s crypto executive order marks a sea change in U.S. digital asset policy,” said Nathan McCauley, CEO and co-founder of crypto company Anchorage Digital.

“By taking a whole-of-government approach to crypto, the Administration is making a significant first step toward writing clear, consistent rules of the road.”

If implemented by the relevant regulators, Trump’s order has the potential to push cryptocurrencies into the mainstream, regulatory and crypto experts said. It follows Tuesday’s SEC announcement that it was creating a taskforce to overhaul crypto policy.

hit a fresh record high of $109,071 on Monday amid investor excitement over the new crypto-friendly administration, although it was down to about $103,000 as of late Thursday afternoon.

“Just days into his administration, President Trump is delivering on his promises… to keep the United States a leader in digital assets innovation,” Senator Tim Scott, the Republican chair of the Senate Banking Committee, said in a statement.

The industry has for years argued existing U.S. regulations are inappropriate for cryptocurrencies and have called for Congress and regulators to write new ones clarifying when a crypto token is a security, commodity or falls into another category.

The working group, which will include the Treasury secretary, chairs of the SEC and Commodity Futures Trading Commission, along with other agency heads, is tasked with developing a regulatory framework for digital assets, according to the order. That includes stablecoins, a type of cryptocurrency typically pegged to the U.S. dollar.

The group is also set to “evaluate the potential creation and maintenance of a national digital asset stockpile… potentially derived from cryptocurrencies lawfully seized by the Federal Government through its law enforcement efforts.”

The order did not provide further details on how such a stockpile would be set up and analysts and legal experts are divided on whether an act of Congress will be necessary. Some have argued the reserve could be created via the U.S. Treasury’s Exchange Stabilization Fund, which can be used to purchase or sell foreign currencies, and to also hold bitcoin.

In December, Trump named venture capitalist and former PayPal (NASDAQ:) executive David Sacks as the crypto and artificial intelligence czar. He will chair the group, the order said.