The British pound fell to an eight-month low against the US dollar on Thursday, while the euro hit its weakest level since November 2022. Markets reopened following disrupted trade over Christmas and the New Year’s holiday, with optimism around the US economy in focus.
US interest rate expectations, including lower taxes and deregulation under Donald Trump, have been driving the dollar higher in recent months. The US dollar index reached its highest level in over two years on Thursday, as investors geared up for Trump’s return to the White House this month.
The euro traded 1% lower against the dollar at $1.0255, also its weakest since November 2022. Divergent expectations for interest rates and economic growth led to a hit in European currencies. Some improvement in US growth is expected in 2025, but European forecasts remain downbeat compared to the US.
Revised UK economy figures showed stagnation in the third quarter, while economists warn of potential trade wars and structural issues affecting euro zone nations this year. The European Central Bank and Bank of England appeared more dovish at their December meetings, citing higher interest rates as supportive of domestic currencies.
Analysts expect key data to assess US macro narrative, including Thursday’s jobless claims and Friday’s ISM manufacturing report, along with next week’s nonfarm payrolls. Market pricing for fewer rate cuts this year may be overly hawkish, and any negative US data surprises could trigger a dollar correction.
Source: https://www.cnbc.com/2025/01/02/euro-british-pound-fall-against-us-dollar-as-markets-brace-for-trump.html