Dollar Slips but Poised for Strongest Weekly Gain in a Month; Euro Faces Pressure Amid ECB Cuts

The U.S. dollar experienced a slight dip on Friday but remained on track for its strongest weekly performance in a month, buoyed by expectations that the U.S. economy will continue to outperform its global peers in 2025. The outlook for sustained higher U.S. interest rates has been a key factor driving demand for the currency.
A solid labor market and persistent inflation have recently pushed Treasury yields higher, further supporting the dollar. Additionally, expectations surrounding new policies under the incoming Donald Trump administration, such as business deregulation, tax cuts, curbs on illegal immigration, and tariffs, are anticipated to drive economic growth while adding to inflationary pressures.
At the time of writing, the dollar index stood at 108.91, down 0.28% on the day, after reaching a two-year high of 109.54 on Thursday. Despite the dip, it is set to close the week with a gain of 0.85%.
Dollar Outlook Amid Policy Uncertainty
Although the dollar has surged in recent weeks, uncertainty remains over the timing and impact of the proposed policies under the new U.S. administration. This ambiguity could temporarily pause the dollar’s rally.
“We’re likely to see a bit of a dollar pullback as the administration comes in, because all these proposed tariffs will take time to implement, and there’s no certainty about whether they will all materialize,” said Helen Given, FX trader at Monex USA in Washington. “However, as we move through the second half of this calendar year, I believe we will see more dollar strength.”
Euro Faces Weak Growth Outlook, Faces U.S. Tariffs
The euro continues to struggle with a weaker growth outlook, compounded by the potential impact of U.S. tariffs. Traders are anticipating that the European Central Bank (ECB) will be more aggressive in cutting rates compared to the Federal Reserve this year.
The ECB is expected to cut rates by 100 basis points by the end of 2025, while markets are pricing in a much smaller chance of a 50-basis point rate cut by the Fed. Additionally, ongoing uncertainties such as the French budget battle and German elections are weighing heavily on the single currency.
The euro traded at $1.0305, up 0.39% on the day, but still on track for a 1.22% weekly decline, marking its worst performance since early November.
Other Currency Movements
- Sterling gained 0.41% to $1.2431, though it was poised for a weekly loss of 1.15%, the largest decline since early November.
- Japanese Yen slid 0.26% to 157.11, remaining just below the five-month high of 158.09 hit in December. The yen’s decline has been driven by a widening interest rate differential between the U.S. and Japan, with the Bank of Japan’s cautious stance on further rate hikes adding pressure.
- Chinese Yuan weakened to its lowest level in over a year, hitting 7.3199 per dollar, as falling yields and expectations of more domestic rate cuts continued to weigh on the currency.
Cryptocurrencies: Bitcoin Gains
In the cryptocurrency market, Bitcoin rose 1.59% to $98,658, continuing its recent positive momentum.