Dollar at two-year high on growth outlook, euro tumbles

NEW YORK – The US 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 US growth will beat peers and keep US 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 US 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 US 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 US 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 dollar index was last up 0.77% on the day at 109.38.

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

The single currency accelerated losses after it broke below the USD 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 better than most major currencies against the greenback last year, fell 1.19% to USD 1.2368, its lowest since April. Its fall accelerated after it broke through resistance around USD 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.

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

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

(Reporting by Karen Brettell; Additional reporting by Ankur Banerjee and Alun John; Editing by Christopher Cushing, Angus MacSwan, Susan Fenton, Andrew Heavens, and Richard Chang)

Oil prices settle up on China optimism as investors return from holiday

NEW YORK – Oil prices settled up by more than USD 1 a barrel on Thursday as investors returned for the first trading day of 2025 with an optimistic eye on China’s economy and fuel demand after a pledge by President Xi Jinping to promote growth.

Swelling gasoline and distillate inventories in the US pressured prices and capped gains.

Brent crude futures settled at USD 75.93 a barrel, up USD 1.29, or 1.7%. US West Texas Intermediate crude settled at USD 73.13 a barrel, up USD 1.41 or 2%.

Xi said in his New Year’s address on Tuesday that China would implement more proactive policies to promote growth in 2025.

China’s factory activity grew more slowly than expected in December, a Caixin/S&P Global survey showed on Thursday, amid concerns about tariffs proposed by US President-elect Donald Trump. Some analysts view weaker Chinese data as positive for oil prices because Beijing could be encouraged to accelerate stimulus.

An official survey released on Tuesday showed China’s manufacturing activity barely grew in December. Services and construction fared better, with the data suggesting policy stimulus is trickling into some sectors.

US oil stocks data from the Energy Information Administration released on Thursday, a day later than normal due to the New Year holiday, showed gasoline and distillate inventories jumped last week.

US gasoline stocks rose by 7.7 million barrels in the week to 231.4 million barrels. Distillate stockpiles, which include diesel and heating oil, increased by 6.4 million barrels in the week to 122.9 million barrels.

“The negative portion of the release was in the large product stock builds,” said Jim Ritterbusch of Ritterbusch and Associates in Florida, which he said were attributable to an unexpected drop in demand.

Crude stockpiles fell less than expected, decreasing by 1.2 million barrels to 415.6 million barrels last week compared with analysts’ expectations in a Reuters poll for a 2.8-million-barrel draw.

Traders kicking off the new year also are probably weighing higher geopolitical risks and Trump’s efforts to run the US economy hot against the expected drag from proposed tariffs, said IG market analyst Tony Sycamore.

“Tomorrow’s US ISM manufacturing release will be key to crude oil’s next move,” Sycamore said.

Sycamore said WTI’s weekly chart is winding itself into a tighter range, suggesting that a big move is coming.

“Rather than trying to predict in which way the break will occur, we would be inclined to wait for the break and then go with it,” he added.

Oil prices are likely to be constrained near USD 70 a barrel in 2025, down for a third year after a 3% decline in 2024, with weak Chinese demand and rising global supplies offsetting OPEC+ efforts to shore up the market, a Reuters poll showed.

In Europe, Russia halted gas pipeline exports through Ukraine on New Year’s Day after the transit agreement expired on Dec. 31. The European Union has arranged alternative supply ahead of the widely expected stoppage while Hungary will keep receiving Russian gas via the TurkStream pipeline under the Black Sea.

(Additional reporting by Anna Hirtenstein, Florence Tan in Singapore, Colleen Howe in Beijing, and Paul Carsten in London; Editing by David Goodman, Frances Kerry, Rod Nickel, Andrea Ricci, and David Gregorio)

Oil prices ease as markets weigh China stimulus hopes

NEW YORK – Oil edged lower on Thursday in light holiday trade as the dollar’s strength offset hopes for additional fiscal stimulus in China, the world’s biggest oil importer.

Brent crude futures settled down 32 cents, or 0.43%, at USD 73.26 a barrel. US West Texas Intermediate crude closed at USD 69.62, down 0.68%, or 48 cents, from Tuesday’s pre-Christmas settlement.

Chinese authorities have agreed to issue 3 trillion yuan (USD 411 billion) worth of special treasury bonds next year, Reuters reported on Tuesday, citing two sources, as Beijing ramps up fiscal stimulus to revive a faltering economy.

“Injecting a stimulus into a nation’s economy creates increased demand, and increased demand pushes prices higher,” said Tim Snyder, chief economist at Matador Economics.

The World Bank on Thursday raised its forecast for China’s economic growth in 2024 and 2025, but warned that subdued household and business confidence, along with headwinds in the property sector, would keep weighing it down next year.

The US dollar continued to edge up higher after hitting a milestone last week. A stronger dollar makes oil more expensive for holders of other currencies.

The latest weekly report on US inventories, from the American Petroleum Institute industry group, showed crude stocks fell last week by 3.2 million barrels, market sources said on Tuesday.

Traders will be waiting to see if the official inventory report from the Energy Information Administration confirms the decline. The EIA data is due at 1 p.m. EST (1800 GMT) on Friday, later than normal because of the Christmas holiday.

Analysts in a Reuters poll expect crude inventories to have fallen by about 1.9 million barrels in the week to Dec. 20, while gasoline and distillate inventories are seen falling by 1.1 million barrels and 0.3 million barrels respectively.

Elsewhere, southbound traffic in Turkey’s Bosphorus Strait was set to resume on Thursday, having been halted earlier in the day after a tanker suffered an engine failure, shipping agent Tribeca said.

(Additional reporting by Alex Lawler in London, Yuka Obayashi in Tokyo, and Emily Chow in Singapore; Editing by Alexandra Hudson, Louise Heavens, and Richard Chang)

Gold rises on safety demand as markets look to 2025 in holiday lull

Gold prices rose on Thursday, driven by safe-haven demand in light trading after the Christmas holiday, as markets awaited signals on the US economy under the incoming Trump administration and the Federal Reserve’s interest rate strategy for 2025.

Spot gold rose 0.9% to USD 2,635.29 per ounce, as of 01:47 p.m. ET (1847 GMT). US gold futures settled 0.7% higher at USD 2,653.90.

“Some of gold’s gains had to do with what’s going on in Ukraine with Russia hitting Ukraine’s electrical system,” said Daniel Pavilonis, senior market strategist at RJO Futures.

President Joe Biden said on Wednesday he asked the US Defense Department to continue its surge of weapons deliveries to Ukraine after condemning Russia’s Christmas Day attack against some of Ukraine’s cities and its energy system.

“Gold will still be purchased by central banks, and as inflation continues, you may see increased demand for gold on the retail side as well,” Pavilonis said, adding that prices are expected to break USD 3,000 next year.

Gold is considered a hedge against geopolitical turmoil and inflation, but higher rates reduce the appeal of holding the non-yielding asset. The yellow metal has gained 28% so far this year and scored an all-time peak of USD 2,790.15 on Oct. 31.

Next year will be very volatile for bullion, with first-half gains on heightened geopolitical tensions and profit-taking in the second half, said Ajay Kedia, director at Kedia Commodities, Mumbai.

As Donald Trump prepares to return to the White House in January, markets will be closely monitoring US economic data to gauge how the Fed will navigate inflationary pressures anticipated from his administration’s policies, including tariffs, deregulation and tax reforms.

After aggressively cutting rates in September and November, the Fed persisted with easing in December but hinted at fewer reductions in 2025.

Spot silver rose 0.4% to USD 29.72 per ounce, platinum fell 0.9% to USD 935.25 and palladium shed 3% to USD 925.08.

(Reporting by Sherin Elizabeth Varghese, Anushree Mukherjee, and Anjana Anil in Bengaluru; Additional reporting by Swati Verma; Editing by Alistair Bell, Richard Chang, and Mohammed Safi Shamsi)

Dollar gains on yen on bets of US growth, inflation

NEW YORK – The US dollar hit a five-month high against the Japanese yen on Thursday on expectations the greenback would be boosted next year by policies by the incoming Donald Trump administration that are expected to boost growth and lift inflation.

Trading volumes were light on Thursday with many traders on holiday after Wednesday’s Christmas holiday and before next week’s New Year holiday.

Looser business regulations and tax cuts are expected to help propel US growth next year while analysts say that a clamp-down on illegal immigration and the prospect of new tariffs on trading partners could increase price pressures, and weigh on the economy longer term.

That has boosted the dollar against its peers, though there remains a lot of uncertainty over exactly what policies will be introduced and what their impact will be.

Rising doubts over how many interest rate cuts the Federal Reserve will be able to undertake next year has added to the dollar rally in the past few weeks.

The US central bank last week cut rates by 25 basis points as expected and Fed Chair Jerome Powell said more reductions in borrowing costs now hinge on further progress in lowering stubbornly high inflation.

Fed policymakers raised their inflation projections for 2025 and cut their interest rate forecast to 50 basis points for the year, from 100 basis points.

Money market traders are currently pricing in 38 basis points of cuts next year, implying they see a roughly 50% chance that the Fed will make a second 25 basis point reduction.

Data on Thursday showed that the number of Americans filing new applications for jobless benefits dipped to the lowest in a month last week, consistent with a cooling but still-healthy US labor market.

US retail sales also rose 3.8% between Nov. 1 and Dec. 24, as intense promotion to drum up sales in what was expected to be a highly competitive holiday season for retailers prompted last-minute shopping among consumers.

The dollar index was last up 0.02% at 108.13. It is holding just below a two-year high of 108.54 reached on Friday.

The euro rose 0.13% to USD 1.0418. The single currency fell to USD 1.03435 on Friday, the lowest since Nov. 22.

The greenback gained 0.35% to 157.93 Japanese yen and earlier reached 158.09, the highest since July 17.

The Japanese yen has suffered from the wide interest rate differential between the United States and Japan.

The Bank of Japan expects the economy to move closer to sustainably achieving the central bank’s 2% inflation target next year, Governor Kazuo Ueda said on Wednesday, suggesting the timing of its next interest rate increase was nearing.

In cryptocurrencies, bitcoin fell 2.88% to USD 95,598.

(Reporting by Karen Brettell; Editing by Alistair Bell and Chizu Nomiyama)

Yields gyrate in quiet holiday trade, pressured after 7-year sale

NEW YORK – The yield on the benchmark US Treasury note pared earlier gains on Thursday following a strong seven-year note auction, after earlier rising to an eight-month high in thin holiday trading in spite of weekly data showing a solid employment picture that should allow the Federal Reserve to adopt a less dovish stance in 2025.

Claims for unemployment insurance were 219,000 in the latest week, less than the previous period’s 220,000 and economists’ forecasts for 224,000.

The main event of the day was the seven-year note auction, which saw solid demand for the more than USD 44 billion sold, with high yield accepted of 4.532% about 2 basis points lower than where the when issued was trading around the close of bidding. The bid-to-cover ratio of 2.76 was the highest since 2.76 in March 2020.

Yields on the seven-year note fell following the auction and were last at 4.518%.

The 10-year yield following the auction was flat from its level late on Tuesday, before the Christmas holiday, at 4.588%. It earlier hit 4.641%, the highest level since May 2. The yield on the 30-year bond was just 0.5 basis points higher at 4.765%.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up just 0.4 basis points to 4.334, after earlier reaching 4.367%.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 24.3 basis points, marginally flatter than Tuesday’s late spread at +24.8 bp.

Based on the fed funds futures term structure, traders see minimal chance that the Fed will ease at its January meeting, after delivering a quarter point cut earlier this month. That brought the fed funds target to 4.25%-4.50% and was its third since it became more accommodative in September, after leaving its target rate at 5.25% to 5.50% since July 2023.

Fed officials cite strong employment, solid growth, and slow progress in lowering inflation to its 2% target as possible reasons to let up on the easing. So, markets are pricing accordingly.

In fact the 10-year TIPS breakeven rate was last at 2.352%, indicating the market sees inflation averaging just under 2.4% a year for the next decade. The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.402%

According to LSEG data, traders don’t see another interest rate reduction until May and see a less than 50/50 chance of another 25 basis points from there by year-end.

(Reporting by Matt Tracy; Editing by Chizu Nomiyama)

China stocks close flat, energy gains offset small-cap losses

SHANGHAI – China stocks closed roughly flat on Wednesday, as gains in energy shares offset losses in small-cap shares, while the Hong Kong market was closed for a public holiday.

** China’s blue-chip CSI300 Index closed up 0.05%, while the Shanghai Composite Index was down 0.01%.

** The CSI 2000 index, which tracks small-cap stocks, fell 2.3%, while energy shares added 1.3%.

** Chinese retail investors often favor small concept stocks, primarily for speculative purposes, attracted by potentially quick gains despite the risks involved.

** Some AI and e-commerce concept stocks fell sharply, with Hydsoft Technology down 10%, while bank stocks extended their rally.

** China’s central bank conducted a medium-term loan operation on Wednesday while keeping the interest rate unchanged.

** Efforts will continue in 2025 to stabilise China’s real estate market, China Construction News reported, citing a work conference held by the housing regulator.

** The CSI real estate shares were down 1.6%.

** Financial markets in Hong Kong will be closed through Thursday for the holiday.

** Looking ahead to 2025, AllianceBernstein maintains a cautiously optimistic outlook on China’s onshore stocks.

** “With policy stimulus guiding the way, the domestic economy is anticipated to emerge from its downturn and gradually stabilize, leading to a recovery in the earnings of listed companies,” said Huang Senwei, senior market strategist at AllianceBernstein.

** Sources with knowledge of the discussions told Reuters on Tuesday that Chinese authorities have agreed to issue 3 trillion yuan (USD 411 billion) worth of special treasury bonds next year to ramp up fiscal stimulus.

(USD 1 = 7.2988 Chinese yuan renminbi)

(Reporting by Shanghai Newsroom; Editing by William Mallard and Edmund Klamann)

Japan’s budget to hit record, but with reduced new bond issuance, draft shows

TOKYO – Japan’s government is set to compile a record USD 735 billion budget for the fiscal year from April due to larger social security and debt-servicing costs, adding to the industrial world’s heaviest debt, a draft seen by Reuters showed.

The 115.5 trillion yen draft budget is being compiled as the Bank of Japan shifts away from its decade-long stimulus program, putting more burden on the government to stimulate the economy.

In an attempt to improve public finances, however, the government plans to trim new bond issuance next fiscal year to 28.6 trillion yen from this fiscal year’s initially planned 35.4 trillion yen, helped by tax revenue growth, the draft showed.

It is the first time in 17 years that new bond issuance will drop below 30 trillion yen.

Decades of stop-start fiscal spending and reform have left Japan with the industrial world’s heaviest public debt burden – more than double the size of its annual economic output.

The BOJ’s retreat from a decade of radical stimulus adds to pressure on Japan’s fiscal health, as the government can no longer count on the central bank to effectively bankroll debt.

The BOJ ended negative interest rates in March and raised its short-term policy target to 0.25% in July. Governor Kazuo Ueda signalled on Wednesday that the next rate hike is nearing, saying wage and price developments indicate the economy will move closer to sustainably achieving the central bank’s 2% inflation target next year.

The draft budget, up from this fiscal year’s 112.6 trillion yen, is expected to be approved by Prime Minister Shigeru Ishiba’s cabinet on Friday for submission to parliament for deliberation early next year.

Tax revenue is projected to rise 8.8 trillion yen from this year’s initial estimate to a record 78.4 trillion yen, thanks in part to a recovery in corporate profits, according to the draft.

The primary budget balance, which excludes new bond sales and debt servicing costs, will be in deficit of less than 1 trillion yen, keeping alive the possibility of achieving the government’s goal of delivering a primary budget surplus by the next fiscal year.

The budget draft assumes the yield on the benchmark 10-year government bond rises to 2% next fiscal year from this year’s 1.9%, topping 2% for the first time in 13 years.

That would boost debt-servicing costs for interest payments and debt redemption to 28.2 trillion yen from 27 trillion yen for this fiscal year.

The government on Wednesday revised its economic outlook, estimating the real economic growth rate for the current fiscal year at 0.4%, down from 0.7% projected in November as a Chinese economic slowdown weighed on exports.

The growth projection for the next fiscal year was kept at 1.2%.

(USD 1 = 157.2200 yen)

(Reporting by Takaya Yamaguchi, Makiko Yamazaki, Yoshifumi Takemoto, and Kaori Kaneko; Editing by William Mallard and Raju Gopalakrishnan)

Japan’s Nikkei reverses course, ends higher as autos rise

TOKYO – Japan’s Nikkei share average reversed early losses to end higher on Wednesday, driven by gains in the auto sector although trade was dominated by retail investors, who bought back cheap stocks in muted trade with many global markets closed for the holidays.

The Nikkei rose 0.24% to close at 39,130.43 after falling as much as 0.28% earlier in the session.

The auto sector rose 2.9% and was the best performer among the Tokyo Stock Exchange’s 33 industry sub-indexes. Nissan Motor, the Nikkei’s top percentage gainer, surged 8.66%.

The broader Topix also erased losses to end 0.24% higher, at 2,733.86. Toyota Motor, which closed up 4.57%, was the biggest contributor to the Topix rise.

“There was seasonal selling of shares by retail investors, such as stocks in investment trusts. But once the equities fell to a certain level, they bought them back, betting the market will rise in the next session,” said Naoki Fujiwara, senior general manager at Shinkin Asset Management.

Technology investor SoftBank Group rose 1.27% and was the biggest source of support for the Nikkei. Uniqlo brand owner Fast Retailing rose 0.26%.

The market struggled to find direction with foreign investors away for the holiday season, said Fumio Matsumoto, chief strategist at Okasan Securities.

“This time of the year, local individuals were the only ones active in trading but they do not want to place active bets when foreign investors are away and large stocks do not move actively.”

Bank shares fell, with Mitsubishi UFJ Financial Group falling 0.44% and Sumitomo Mitsui Financial Group down 0.56%.

Of more than 1,600 stocks trading on the Tokyo Stock Exchange’s prime market, 52% rose, 44% fell and 3% traded flat.

(Reporting by Junko Fujita; Editing by William Mallard and Edmund Klamann)

Japan’s Nikkei slumps to weekly loss despite softer yen

TOKYO – Japan’s Nikkei share average fell on Friday and logged its worst week in more than a month despite the tailwind from a weaker yen, as the decline on Wall Street and caution after major central bank policy decisions weighed.

The Nikkei closed 0.29% lower at 38,701.90, bringing it to a weekly decline of 1.66%, its steepest decline since early-November.

The broader Topix lost 0.44%, and fell 1.19% for the week, the index’s sharpest weekly drop since mid-October.

Stocks drew little support from the Bank of Japan’s (BOJ) decision to not hike interest rates on Thursday or from Governor Kazuo Ueda’s news conference where he said considerable time was required to judge the outlook for domestic wages and overseas economies, chiefly the US

This came after the US Federal Reserve signaled a more cautious pace of rate cuts in 2025, after trimming rates by a quarter point on Wednesday.

That sent the US S&P 500 diving almost 3%, its biggest single-day decline since early August.

An invigorated dollar and an out-of-favour yen saw the pair touch 157.93 on the day for the first time since mid-July on Friday.

Japan’s Finance Minister Katsunobu Kato and top currency diplomat Atsushi Mimura called the yen’s sharp slide “alarming”, and said officials are ready to take “appropriate action”.

“With the weekend approaching, investors have a high sense of caution about what is next for the yen,” said Maki Sawada, an equities strategist at Nomura Securities.

Concerns about the potential for currency volatility may have stifled a potential relief rally following a week of huge, market-moving events, she said.

Carmakers, at least, were supported by the weaker yen, which boosts the value of overseas sales. Toyota gained 1.74%.

Real estate was the best performer among the Tokyo Stock Exchange’s 33 industry groups, climbing 2.39% as Japanese government bond yields sank to one-month lows.

Banks, which tend to move in tandem with bond yields, were the worst sectoral performers, shedding 2.67%.

Kadokawa fell by its daily limit of 16% after the media powerhouse behind the “Elden Ring” game announced a capital tie-up with Sony, instead of a widely anticipated acquisition. Sony added 0.74%.

(Reporting by Kevin Buckland; Editing by Sumana Nandy and Varun H K)

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