LONDON, SINGAPORE Dec 27 (Reuters): The US dollar was headed for an almost 7 per cent annual gain while Japan's yen was set for a fourth consecutive year of losses on Friday, as traders anticipated robust US growth would make the Federal Reserve cautious on rate-cutting well into 2025.
The dollar index , which measures the currency against major rivals, rose 0.08 per cent to 108.06 to approach a 2.2 per cent monthly rise and was on course to close 2025 6.6 per cent higher.
The dollar was also nearing a 5.5 per cent gain this month against the yen and an 11.8 per cent advance for 2024 against the weakened Japanese currency, while the euro stayed close to two-year lows.
Fed Chair Jerome Powell said earlier this month that US central bank officials "are going to be cautious about further cuts" after an as-expected quarter-point rate reduction.
The US economy also faces the impact of President-elect Donald Trump, who has proposed deregulation, tax cuts, tariff hikes and tighter immigration policies that economists view as both pro-growth and inflationary.
Traders, meanwhile, anticipate the Bank of Japan will keep its monetary policy settings loose and the European Central Bank will deliver further rate cuts.
The yen on Friday hovered around levels last seen in July, at 157.75 per dollar, while the euro traded at $1.042, just above a low of about $1.04 struck on Dec. 18.
Traders are pricing in 37 bps of US rate cuts in 2025, with no reduction fully priced into money markets until June, by which time the ECB is expected to have lowered its deposit rate by a full percentage point to 2 per cent as the euro zone economy slows.
The BoJ held back from a rate hike this month. Governor Kazuo Ueda said he preferred to wait for clarity on Trump's policies, underscoring rising angst among central banks worldwide of US tariffs hitting global trade.
For now, the dominance of US equities in world indices and weaker currencies in Asia and Europe helping to boost exporters have prevented tighter US monetary policy from weighing on global stocks.
MSCI's broad global share index traded 0.1 higher on Friday to remain 1.5 per cent higher for the week, with Wall Street's S&P 500 on course for a 1.8 per cent weekly gain.
Futures trading indicated the S&P would start the New York session about 0.4 per cent lower.
MSCI's broadest index of Asia-Pacific shares outside Japan was heading for a 1.5 per cent weekly rise and Tokyo's Nikkei closed the week 2 per cent higher.
European stocks lagged, with the Stoxx 600 flat on Friday and 0.3 per cent higher this week.
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