The US dollar rose to the top of the forex market on the first trading day of 2025, as broader markets keep one foot firmly planted on the safe-haven currency. Traders may not be the biggest fans of the US dollar in terms of policy, but the USD remains the de facto winner by default amid a global backdrop of unstable economic conditions.
Here’s what you need to know heading into Friday, January 3
The US Dollar Index (DXY) rallied strongly to celebrate the start of the 2025 trading season, rising approximately eight tenths of a percent and reaching the 109.50 level for the first time since November 2022. The only significant data in economic calendar on Friday are the results of the US ISM Manufacturing Purchasing Managers’ Index (PMI) survey, which is expected to remain stable in a contractionary 48.4 for December. Better-than-expected US Initial Jobless Claims data also helped provide flows of macroeconomic support to the Dollar.
EUR/USD has already fallen more than 1% in January, plunging to 1.0250 and falling to two-year lows on the first trading day of the new year. Hopes for the Euro remain lukewarm and investors generally expect the interest rate differential between the EUR and the US Dollar to continue to widen through the first half of 2025. Germany’s mid-range unemployment figures will be released early on Friday.
GBP/USD stumbled on Thursday, falling 1.15% on the day and cleanly breaking the 1.2400 level, hitting a nine-month low in the process. The Cable is set to play second fiddle to other more important market-moving numbers as the UK is largely absent from the economic calendar over the next week.
AUD/USD continues to hold on the lower end with price action struggling with the 0.6200 region as the new trading year begins. The Aussie sought a technical recovery on the day, but overall market flows into the US Dollar kept AUD/USD near 27-month lows.
USD/JPY is heading back towards familiar highs near 158.00 after an intraday recovery on Thursday. The Dollar-Yen pair initially opened 2025 trading with a downward push, but firm US Dollar supply strength in the broader market helped reverse course and keep USD/JPY near six-month highs.
economic indicator
Weekly unemployment benefit requests
Weekly unemployment benefit applications are published by the US Department of Labor and is a measure of the number of people who have filed their first claim for unemployment insurance. In other words, it provides a measure of strength in the labor market. A higher-than-anticipated number indicates weakness in the labor market, which influences the strength and direction of U.S. economic activity. In this way, a lower than expected reading is bullish for the dollar.
Last post: Thu Jan 02, 2025 1:30 p.m.
Frequency: Weekly
Current: 211K
Dear: 222K
Previous: 219K
Fountain: US Department of Labor
Every Thursday, the US Department of Labor releases the number of initial claims for unemployment benefits for the previous week in the US. Since this reading could be very volatile, investors may want to pay more attention to the average four weeks. A bearish trend is considered a sign of an improving labor market and could have a positive impact on the performance of the USD against its rivals and vice versa.
US Interest Rates FAQs
Financial institutions charge interest rates on loans from borrowers and pay them as interest to savers and depositors. They are influenced by basic interest rates, which are set by central banks based on the evolution of the economy. Typically, central banks are mandated to ensure price stability, which in most cases means targeting an underlying inflation rate of around 2%.
If inflation falls below the target, the central bank can cut base interest rates, in order to stimulate credit and boost the economy. If inflation rises substantially above 2%, the central bank typically raises core lending rates to try to reduce inflation.
In general, higher interest rates help strengthen a country’s currency by making it a more attractive place for global investors to park their money.
Higher interest rates influence the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or depositing cash in the bank.
If interest rates are high, the price of the US Dollar (USD) usually rises and, since Gold is priced in dollars, the price of Gold falls.
The federal funds rate is the overnight rate at which U.S. banks lend to each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set in a range, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the figure quoted.
Market expectations about the Federal Reserve funds rate are tracked by the CME’s FedWatch tool, which determines the behavior of many financial markets in anticipation of future Federal Reserve monetary policy decisions.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
