The US Dollar rose to the top of the forex pile on the first day of trading in 2025 as broader markets keep one foot firmly planted in the safe haven currency. Traders may not be the biggest fans of the US Dollar in policy terms, but the USD is still the de facto winner by default amid a global backdrop of wobbly economic conditions.
Here’s what you need to know heading into Friday, January 3
The US Dollar Index (DXY) rallied hard to celebrate the kickoff of the 2025 trading season, rising roughly eight-tenths of one percent and tapping the 109.50 level for the first time since since November of 2022. The only meaningful data of note on Friday’s economic calendar is US ISM Manufacturing Purchasing Managers Index (PMI) survey results, which are expected to hold steady at a contractionary 48.4 for December. A better-than-expected print in weekly US Initial Jobless Claims also helped provide macro support flows in the Greenback.
EUR/USD is already down over 1% in January, tumbling to 1.0250 and slipping into two-year lows for the first trading day of the new year. Hopes for the Euro remain tepid and investors broadly expect the interest rate differential between the EUR and the US Dollar to continue increasing through the first half of 2025. Mid-tier German unemployment figures are due early Friday.
GBP/USD stumbled on Thursday, falling 1.15% on the day and cleanly breaking through the 1.2400 handle, hitting a nine-month low in the process. Cable is set to play second fiddle to other, more important market-moving figures with the UK largely absent from the economic calendar over the next week.
AUD/USD continues to hold on the low end with price action grappling with the 0.6200 region as the new trading year gets underway. The Aussie looked for a technical recovery on the day, but broad-market flows into the Greenback kept AUD/USD pinned near 27-month lows.
USD/JPY is headed back toward familiar highs near 158.00 after an intraday recovery on Thursday. The Dollar-Yen pairing initially opened up 2025’s trading with a downside push, but the US Dollar’s firm bidding strength from across the wider market helped to reverse course and keep USD/JPY near six-month highs.
Economic Indicator
Initial Jobless Claims
The Initial Jobless Claims released by the US Department of Labor is a measure of the number of people filing first-time claims for state unemployment insurance. A larger-than-expected number indicates weakness in the US labor market, reflects negatively on the US economy, and is negative for the US Dollar (USD). On the other hand, a decreasing number should be taken as bullish for the USD.
Read more.Last release: Thu Jan 02, 2025 13:30
Frequency: Weekly
Actual: 211K
Consensus: 222K
Previous: 219K
Source: US Department of Labor
Every Thursday, the US Department of Labor publishes the number of previous week’s initial claims for unemployment benefits in the US. Since this reading could be highly volatile, investors may pay closer attention to the four-week average. A downtrend is seen as a sign of an improving labour market and could have a positive impact on the USD’s performance against its rivals and vice versa.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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