By Karen Brettell

NEW YORK (Reuters) -The U.S. dollar jumped to a two-year high on Thursday in the first day of 2025 trading, building on last year’s strong gains on expectations U.S. growth will beat peers and keep U.S. interest rates relatively elevated.

The Federal Reserve has indicated that it will be more cautious in cutting interest rates as inflation remains stubbornly above its 2% annual target and the economy remains strong.

Policies by U.S. President-elect Donald Trump are also expected to boost growth and potentially add to upward price pressures.

“In terms of 2025 economic growth, there’s no rival to the dollar,” said Adam Button, chief currency analyst at ForexLive in Toronto.

“Capital flows dominate the turn of the year and the U.S. stock market has really put to shame every other global market,” Button added. “The dollar is the only game in town until there is a genuine stumble in the U.S. economy.”

Data on Thursday confirmed a still solid jobs market. The number of Americans filing new applications for unemployment benefits dropped to an eight-month low last week, pointing to low layoffs at the end of 2024.

The was last up 0.77% on the day at 109.38.

The euro dropped 1.01% to $1.025, its lowest since November 2022.

The single currency accelerated losses after it broke below the $1.03 level, indicating that technical factors were deepening the sell-off.

Traders anticipate deep interest rate cuts from the European Central Bank in 2025, with markets pricing in at least four 25-basis-point cuts, while not being certain of even two such moves from the Fed.

ECB policymaker Yannis Stournaras said on Thursday he expected the bank’s main interest rate to be cut to 2% by the autumn, from 3% currently.

Sterling, which held in better than most major currencies against the greenback last year, fell 1.19% to $1.2368, its lowest since April. Its fall accelerated after it broke through resistance around $1.2475.

The dollar gained 0.47% to 157.61 Japanese yen.

It reached a five-month high above 158.09 yen in late December, potentially putting pressure on the Bank of Japan, which is expected to raise interest rates early this year, but perhaps not imminently.

languished at 14-month lows as worries about the health of the world’s second-biggest economy, the prospect of U.S. import tariffs from the Trump administration and sliding local yields weighed on investor sentiment. CNY/

In cryptocurrencies, bitcoin rose 2.77% to $97,404.93.