Last Friday, the US dollar index slightly fell by 0.06% to 108.02, ending a week of gains. However, the dollar index reached a two-year high of 108.54 during the day, with an expected annual increase of 6.6%. The market is broadly focused on Federal Reserve policy adjustments and the long-term impact of future US government economic policies on the dollar.
Yen Rebounds as Rate Hike Expectations Rise
The yen rebounded against the dollar from a five-month low last Friday, as the latest Bank of Japan policy meeting minutes showed some policymakers expressed greater confidence in imminent rate hikes. This has led the market to believe that the Bank of Japan may start a rate hike cycle in January 2024. Although the BOJ kept rates unchanged this month, it reduced the monthly bond purchase amount, with the monthly purchase scale dropping to about 4.5 trillion yen (approximately 3.1 billion dollars) starting in January.
Société Générale analyst Kit Juckes noted in a report that the possibility of a BOJ rate hike in the first quarter and a decline in US bond yields in the second half of 2025 might drive the dollar-yen down from its current peaks, potentially pulling back to the 130 level by the end of 2024.
Federal Reserve Policy and Dollar Outlook
Despite the Federal Reserve cutting interest rates by 100 basis points since September, the market remains cautious about its future pace of rate cuts. Analysts believe that policies from a new Trump administration might boost inflation and economic growth, further affecting the dollar's trajectory. The dollar-yen is expected to rise 12% for the year, having reached a high of 158.09 since July on Thursday, and closed at 157.85 on Friday.
Performance of Other Major Currencies
The euro rose 0.04% against the dollar on Friday to 1.0426, though it is expected to decline 5.6% for the year; the pound increased by 0.34% to 1.2568 dollars, with a potential annual decrease of 1.2%. In Korea, political turmoil intensified as Acting President Han Duck-soo was impeached, causing the won to fall to a 16-year low against the dollar, standing at 1486.7 won.
Future Prospects and Market Focus
Investors are closely monitoring potential monetary policy adjustments by the Bank of Japan and whether the finance ministry will intervene again to support the yen. Japan's Finance Minister Shunichi Suzuki has reiterated concerns about yen depreciation, warning of actions against excessive exchange rate volatility. Additionally, global markets are focused on the policy direction of the US government and the Federal Reserve, with the future trajectory of the dollar and other major currencies remaining uncertain.
