Post by : Meena Ariff

The U.S. dollar remained steady on Tuesday as investors waited for the Federal Reserve’s December meeting minutes, expected to highlight divisions among policymakers over the future path of interest rates.

Trading activity stayed muted due to holiday-thinned liquidity, but market sentiment remained cautious after a challenging year for the dollar. Weakness in the greenback helped push the euro and the British pound to their strongest annual performances since 2017.

The euro traded around $1.1772, heading for an annual gain of nearly 14%, while the pound hovered near $1.3504, set to rise about 8% in 2025. A softer dollar also allowed the Chinese yuan to move past the key 7-per-dollar level, even as authorities stepped in with guidance and warnings to prevent excessive currency strength.

The dollar index, which measures the U.S. currency against a basket of major rivals, stood near 98 and was poised for its steepest annual decline in eight years. Expectations of U.S. rate cuts, narrowing interest rate differentials, and concerns over fiscal deficits and political uncertainty have all weighed heavily on the greenback.

Investor focus remains firmly on the upcoming Fed minutes, especially after the central bank reduced interest rates earlier this month while signaling a pause in the near term. Policymakers are divided on how rates should evolve next year, although markets are currently pricing in two more rate cuts by 2026.

Analysts believe the dollar could weaken further if the U.S. economy slows and monetary policy becomes more accommodative. Some forecasts suggest the dollar index may fall by around 5% next year.

In Asia, the Japanese yen stabilized near 156 per dollar after earlier declines triggered strong verbal warnings from officials. Despite two interest rate hikes this year, investors remain cautious due to the Bank of Japan’s slow pace of tightening.

Japan’s government recently upgraded its growth outlook, projecting stronger economic expansion supported by domestic consumption and investment, which could help support the yen in the longer term.

Elsewhere, the Australian dollar traded just below a 14-month high, heading for its strongest yearly performance since 2020. The New Zealand dollar also advanced, set to record its first annual gain in four years, reflecting improved global sentiment and continued pressure on the U.S. dollar.

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