The US dollar performed strongly on the last trading day of this year and is expected to record strong gains against most currencies in 2024, as investors prepare for a decrease in the number of US interest rate cuts and the upcoming policies of the Trump administration.

The US dollar index remains around 108 points, not far from the two-year high reached this month. Due to traders reducing their bets on a significant interest rate cut next year, the US dollar index has risen by 6.6% in 2024.

Due to vigilance against stubborn high inflation, the Federal Reserve shocked the market earlier this month by lowering its 2025 rate cut forecast from 100 basis points to 50 basis points.

However, Goldman Sachs strategists expect the Federal Reserve to cut interest rates three times next year, as they believe inflation rates will continue to decline. They said in a report, "We believe that the risks posed by Trump's policies on interest rates during his second term are more two-sided than commonly expected

The expectation from the outside world that Trump's relaxation of regulations, tax cuts, increase in tariffs, and tightening of immigration policies will stimulate economic growth and push up inflation, while keeping US bond yields high, has been boosting the US dollar.

Gary Dugan, CEO of Global CIO Office, said, "Although the initial market reaction to Trump's victory in November was one of delight, now they seem to be analyzing the priorities of the incoming administration more carefully

US interest rates may remain relatively high for a longer period of time, putting pressure on most other currencies, especially emerging market currencies, and traders are concerned about the widening interest rate differential between the US and other economies.

euro

The EUR/USD may fall by 5.7% this year, and traders expect the European Central Bank to cut interest rates more aggressively than the Federal Reserve. The euro remained stable around $1.041 on Tuesday, but still close to the two-year low of $1.03315 hit in November.

Japanese Yen

For the Japanese yen, this year has been another year of volatile trends. The Japanese yen fell below decades low in late April and early July, with the USD/JPY exchange rate dropping to 161.96 yen at one point, triggering intervention from Japanese authorities.

In September, the Japanese yen hit a 14 month high of 139.58, then gave up its gains and has now returned to around 157. Traders are monitoring signs of intervention from Tokyo.

At this month's meeting, the Bank of Japan maintained interest rate stability. The central bank's governor, Kazuo Ueda, stated that the bank is carefully studying more data on next year's wage growth momentum and waiting for clarity on the economic policies of the new US government.

A survey conducted earlier this month showed that the Bank of Japan may raise interest rates before the end of March. The interest rate market expects a probability of only 41% for a rate hike in January.

The Japanese yen fell to its lowest level against the US dollar since the last intervention by Japanese authorities in July. On Tuesday, the Japanese yen was trading at around 157 against the US dollar, with an expected decline of 10% for the whole year, marking the fourth consecutive year of depreciation.

pound

The pound did not change much in early trading, around $1.255, and is expected to decline by 1% in 2024.

Australian dollar and New Zealand dollar

The risk sensitive Australian and New Zealand dollars are unstable, hovering around two-year lows. The Australian dollar is currently at around $0.6229 and is expected to decline by 8.7% this year, marking its weakest annual performance since 2018. The New Zealand dollar is around $0.5644 and is expected to decline by nearly 11% in 2024, marking its weakest performance since 2015. The Australian dollar and New Zealand dollar have gone through a difficult year and will face the risk of Trump tariffs in the future.