2024, the U.S. dollar index in the foreign exchange market, ‘a standout’, in the Federal Reserve cumulative interest rate cuts of 100 basis points in the background of the annual increase of nearly 7%. 2025 since the beginning of the year, the dollar index is still strong unabated, rose above the 109 mark in early January, as of now is still maintained in the 108 mark near the run, since last December, up more than 2%. Since December last year rose more than 2%.
Analysts believe that the comparative advantage of the U.S. economy and interest rate outlook is a key factor in pushing up the dollar index. For the recent strengthening of the dollar, CCB Financial Markets Department analysis said that, on the one hand, the U.S. labour market is still resilient, last week's initial jobless claims announced as of December 28 last week fell to an 8-month low, suppressing the Federal Reserve interest rate cuts are expected. On the other hand, the euro zone, the United Kingdom and other non-U.S. economy fundamentals tend to be weak, the relative advantage of the U.S. economic fundamentals to support the dollar.
Under the pressure of the strong dollar, non-US currencies, especially Asian currencies suffered heavy losses. Currently, Indonesia, Vietnam, India, Japan, South Korea and other countries' currency exchange rate suffered a huge depreciation pressure. Monday Bloomberg Asian currency index once fell to 89.0409, the lowest point since 2006. 7 January, the yen exchange rate continues to be weak, the yen against the dollar fell below the 158 mark during the session. Indian rupee exchange rate against the dollar hovering near the historic low, as of press time 85.7033.
Under the volatile exchange rate market, many countries vowed to stabilise the exchange rate. Japanese authorities signalled foreign exchange intervention for the first time in 2025, expressing concern over sudden and unilateral volatility in the currency market. Japan's Finance Minister Katsunobu Kato said on Tuesday that appropriate action will be taken if there is excessive volatility in the currency market. Katsunobu Kato said he was ‘deeply concerned’ about recent yen movements, including those driven by speculators.
Last year, the Bank of Japan had a number of times to intervene in the currency market, the last two interventions occurred in July 2024, when the yen against the dollar fell below the 160 mark. Currently, the yen is once again hovering near the level that triggered the previous intervention against the dollar, and any sudden volatility in the exchange rate is likely to increase market speculation about exchange rate intervention.
Since November last year, the rupiah against the dollar repeatedly touched the key point of 1 U.S. dollar to 16,000 rupiah. Indonesia's central bank urgently announced a ‘rescue’ initiative, repeatedly stated that measures will be taken to maintain confidence in the foreign exchange market. Bank Indonesia announced in December last year to maintain the benchmark interest rate unchanged, said the focus of monetary policy is to strengthen the stability of the rupiah in response to the direction of U.S. policy and the escalation of geopolitical tensions in various regions of the global economy caused by increased uncertainty. Going forward, RBI will remain vigilant on rupiah exchange rate movements, inflation outlook and emerging dynamic economic conditions as it considers the scope for further monetary policy easing.
Moving forward, global markets remain shrouded in uncertainty over the outlook for Federal Reserve interest rates and expectations for U.S. government policy, and the foreign exchange market is hardly calm. Looking ahead to 2025, a strong US dollar is the prevailing market expectation. However, considering that the current expectations of US government policies have been fully priced in, the threshold for a sustained upward movement of the US dollar index has been high, and short-term volatility is a cause for concern.
On Monday, the dollar index fell sharply in response, once fell more than 1%, the largest one-day drop since November last year, non-US currencies have rebounded overnight and out of the stage lows.
The overseas strategy team of Soochow Securities expects that a strong US dollar will still suppress countries' exchange rates in 2025. The US dollar is expected to remain strong in 2025 on the back of US economic performance, investment returns and tariff policies. However, the pace may be different, with the dollar not expected to appreciate significantly in the first half of the year, remaining in a strong range of 100 to 105 as the Fed extends its interest rate cuts and the impact of US government policies on the economy and inflation is yet to be fully realised.
The team believes that under the influence of a strong dollar, the remaining currencies are expected to be generally under pressure. Rhythmically, in the first half of the year, the dollar's pressure on national currencies is weaker than in the second half of the year, against the backdrop of the Federal Reserve's interest rate cuts and tariff policies that have yet to fully take hold.
‘Changes in Fed and US government policy expectations have supported the dollar in recent weeks, and we continue to believe the dollar is overvalued.’ UBS Wealth Management Investment Director's Office expressed the view that although the dollar is not expected to weaken significantly in the short term, it is recommended that investors should take the opportunity of further strengthening of the dollar to sell the dollar at high levels and diversify into other currencies.