On the first trading day of 2025, the US dollar index rose by 0.7%, reaching its highest level since November 2022. This surge reflects market confidence in the Federal Reserve's hawkish policies and the resilience of the US economy, while dragging down the euro and pound exchange rates to new lows.
The Strengthening Dollar and Changes in the Global Forex Market
The US dollar index closed at 109.15 points, buoyed by market expectations of the Federal Reserve's future policy path. Danske Bank's foreign exchange strategist Mohamad Al-Saraf stated that confidence in a Fed rate cut in 2025 has diminished, further supporting the dollar's strength. Meanwhile, the euro fell 0.9% against the dollar to $1.0267, its lowest level since November 2022. The pound also dropped to an eight-month low against the dollar, at $1.2381.
Al-Saraf expects the euro could fall to parity with the dollar in the coming months. Nevertheless, he warns that if US economic data unexpectedly weakens, the dollar could face a pullback risk. Investors are closely watching key economic indicators such as initial jobless claims, the ISM manufacturing report, and non-farm payroll data.
Divergence in Global Asset Performance
The Federal Reserve conveyed hawkish signals at its December 2024 meeting, supporting the dollar and causing fluctuations in global asset prices. HSBC noted that the Fed's policy shift led to rising yields, putting pressure on almost all asset classes. Its chief multi-asset strategist Max Kettner warned that market volatility might persist in January.
In the commodities market, both gold and oil prices rose. COMEX gold increased by 1.14% to $2,671.2 per ounce, and NYMEX WTI crude oil rose 1.95% to $73.12 per barrel. In the bond market, the yield on the 10-year US Treasury briefly rose to nearly 4.6% before retreating, with the higher yields attracting some investors.
Stock Market Turbulence and Pressure on Tech Stocks
The US stock market showed weak performance on the first trading day of the new year, with the Dow Jones Industrial Average down 0.36%, while the S&P 500 and the Nasdaq indices fell 0.22% and 0.16% respectively. Tech stocks exhibited mixed performances; Apple fell 2.6% due to market weakness, Tesla dropped 6% due to a decline in 2024 deliveries, whereas Nvidia rose 3%, partially offsetting the overall decline in tech stocks.
The S&P 500 and Nasdaq indices have declined for five consecutive trading days, marking the longest losing streak since April last year. Analysts noted that the volatility in the tech sector might persist for some time, and investors' concerns about high-valuation stocks are increasing.
Looking Ahead
As the market enters a new year, investors will closely monitor how economic data impacts the Fed's policy path. HSBC warns that the Fed's hawkish stance may keep the market highly volatile in the short term, and urges investors to watch for potential opportunities in the fixed income market. Amid increasing uncertainty in the global economic environment, diversified asset allocation is becoming increasingly important.
