Economy

LONDON, SINGAPORE (Reuters) – The U.S. dollar was headed for an almost 7% annual gain while Japan’s yen was set for a fourth consecutive year of losses on Friday, as traders anticipated robust U.S. 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% to 108.06 to approach a 2.2% monthly rise and was on course to close 2025 6.6% higher. The dollar was also nearing a 5.5% gain this month against the yen and an 11.8% 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 U.S. central bank officials “are going to be cautious about further cuts” after an as-expected quarter-point rate reduction.The U.S. 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 U.S. 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% 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 U.S. tariffs hitting global trade.For now, the dominance of U.S. equities in world indices and weaker currencies in Asia and Europe helping to boost exporters have prevented tighter U.S. monetary policy from weighing on global stocks.MSCI’s broad global share index traded 0.1 higher on Friday to remain 1.5% higher for the week, with Wall Street’s S&P 500 on course for a 1.8% weekly gain.Futures trading indicated the S&P would start the New York session about 0.4% lower. MSCI’s broadest index of Asia-Pacific shares outside Japan was heading for a 1.5% weekly rise and Tokyo’s Nikkei closed the week 2% higher. European stocks lagged, with the Stoxx 600 flat on Friday and 0.3% higher this week. Analysts said stock markets could change direction as investors returned from holiday and reassessed the risks of elevated U.S. inflation under Trump for richly-valued Wall Street equities. “There is some potential upside left for this bull market, but it is limited,” said Pictet Asset Management chief strategist Luca Paolini. “(Trump’s) inauguration day is a potential inflection point and all the (prospective) good news will be in the price by then,” Paolini added. In debt markets, higher U.S. rate expectations pulled the 10-year Treasury yield, which rises as the price of the fixed income security falls, to its highest since early May on Friday, at 4.611%. The two-year Treasury yield, which tracks interest rate forecasts, traded around 4.34%. U.S. debt trends also sent euro zone yields higher, with Germany’s benchmark 10-year bund yield rising 7 basis points (bps) to 2.392% on Friday. Elsewhere in markets, gold prices dipped 0.3% to $2,626 per ounce, set for about a 27% rise for the year and the strongest yearly performance since 2011 as geopolitical and inflation concerns boosted the haven asset. Oil prices were also set for a weekly rise as investors awaited news of economic stimulus efforts in China, the world’s biggest crude importer. Brent crude futures rose 0.7% on the day to $73.78 a barrel, 1.1% higher for the week. More

The Argentine peso strengthened more in real terms than any other currency in 2024, boosting the popularity of libertarian President Javier Milei even as economists question the sustainability of high prices in Argentina.The peso strengthened 44.2 per cent in the first 11 months of the year against a basket of trading partners’ currencies, adjusting for Argentina’s triple digit annual inflation, according to data from the Bank for International Settlements analysed by Argentine consultancy GMA Capital. That far outpaces the 21.2 per cent gain for the Turkish lira in second place.The gains for the government-set exchange rate have been replicated on several legal and illegal parallel markets where Argentines buy dollars because access to the official rate is restricted.The trend is popular with Argentines, who have seen average salaries almost double in dollar terms to $990 from December 2023 to this October at the parallel rate, after seven years of near-constant depreciation.But it has come at a cost. Argentina’s central bank has struggled to rebuild its virtually empty hard currency reserves as it spends dollars to keep the peso strong. Now, some analysts warn the rapid depreciation of the real in neighbouring Brazil and a potential tariff spree by incoming US president Donald Trump could leave Argentina vulnerable to a sudden devaluation.“Milei’s programme is working, but the peso’s appreciation is the greatest risk going forward,” said Ramiro Blázquez, head of research at investment bank BancTrust. “If the peso continues to appreciate, or if there is a big external shock, demand for cheap dollars could surge, increasing the risk of devaluation.”The stronger currency — dubbed the “super peso” in local media — is making itself felt in Argentina as prices in dollars soar. A Big Mac hamburger costs $7.90 compared with $3.80 a year ago, at the official exchange rate. Earlier this month, steelmaker Ternium warned that labour costs in Argentina had become “60 per cent more expensive” than in Brazil.Business leaders fret privately that the dynamic could soon begin to hurt the competitiveness of Argentine exports. The stronger peso is a side effect of Milei’s effort to stabilise an economy that was on the brink of hyperinflation when he took office a year ago. Alongside a severe austerity programme, he maintained the strict currency controls he inherited. After an initial big devaluation last December he kept the peso mostly stable throughout 2024. Overall, the value of the currency fell by just 18 per cent in the first 11 months, even though inflation for the same period was 112 per cent.The stronger peso is a side effect of Javier Milei’s effort to stabilise an economy that was on the brink of hyperinflation a year ago More

The Dow closed higher for the sixth consecutive session on Thursday in thin year-end trading, while higher U.S. Treasury yields weighed on some heavyweight tech and growth stocks.At 05:09 a.m. ET on Friday, Dow E-minis were down 119 points, or 0.27%, and S&P 500 E-minis were down 22 points, or 0.36%. Futures tracking the tech-laden Nasdaq 100 were down 92.25 points, or 0.42%, as Nvidia (NASDAQ:NVDA) dropped 0.8% in premarket trading and Tesla (NASDAQ:TSLA) shed 1.4%. The S&P 500 has recouped most of last week’s losses that stemmed from the U.S. Federal Reserve projecting fewer interest rate cuts in 2025 and hurting risk appetite.The benchmark index is now eyeing its best week in seven, and is about 1% below its all-time high of 6,099.97 points clinched on Dec. 6.With three sessions left to close out the year, investors are hoping for new all-time highs in the stock-buying season called the “Santa Claus rally” – the last five sessions of December and the first two of January. Since 1969, the S&P 500 has climbed 1.3% on average in the seven-day trading period, according to the Stock Trader’s Almanac.Trading volume in this holiday-shortened week has been below the average of the last six months and is likely to remain subdued until Jan. 6. The next major focus for markets will be the December employments report due on Jan. 10. More

The bank cites several factors contributing to the expected slowdown, including the impact of tariffs planned by US President-elect Trump, structural headwinds in manufacturing, and ongoing fiscal consolidation across the euro area.Goldman projects the euro area to see a growth of 0.8% and the UK 1% in 2025, both figures falling below the consensus.The labor market in the euro area has shown more resilience than anticipated this year, according to the bank, but wage growth has decelerated as pay adjustments align with past price increases.Underlying inflation also cooled significantly post-summer, prompting the European Central Bank (ECB) to cut policy rates by 100 basis points over the year. Goldman strategists anticipate further 25 basis point reductions sequentially to 1.75% by next July, with the possibility of more aggressive cuts if economic conditions deteriorate beyond expectations.In contrast, the UK has experienced persistently high wage growth and services inflation, leading the Bank of England (BoE) to adopt a more cautious stance than other major central banks.The BoE has reduced the Bank Rate only twice this year, with Goldman Sachs expecting additional quarterly rate cuts throughout 2025 “as a weaker labor market cools underlying inflation, more than currently priced,” the report said.2024 was a year of sluggish growth for both the euro area and the UK. Early in the year, economic activity showed promise as real incomes rose, financial conditions improved, and hopes for recovery grew.However, from mid-year onward, growth fell short of expectations as cautious consumer behavior, elevated energy prices, and mounting competition from China weighed on performance. As a result, economic expansion in the euro area and the UK lagged behind the U.S. once again. More

Scholz, a Social Democrat, ended his three-party alliance with the Greens and Free Democrats after he dismissed FDP Finance Minister Christian Lindner over a disagreement regarding government borrowing. This unexpected action left Scholz without a majority in the Bundestag, Germany’s lower house, and set the stage for a national election seven months ahead of the end of his four-year term.With less than two months until the election, the main opposition conservatives, led by Friedrich Merz, are significantly ahead in the polls. Scholz’s SPD party is currently in third place, trailing behind the far-right Alternative for Germany party, with the Greens ranking fourth.The Greens currently hold about 13% of the vote, while Lindner’s FDP is at risk of not reaching the 5% threshold required for parliamentary inclusion, currently polling at 4%.Lars Klingbeil, an SPD co-leader, expressed his belief that the party can start closing the gap to the conservatives in January and still has the potential to emerge as the strongest party again. During the previous election in 2021, the SPD managed to secure almost 26% of the vote in the final weeks of campaigning, outperforming the CDU/CSU, which received 24%.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

TOKYO (Reuters) -The buoyant dollar slipped a notch on Friday at the end of a holiday-thinned trading week, while the yen hovered near a five-month low as traders chewed over contrasting messaging from a hawkish U.S. Federal Reserve and a cautious Bank of Japan. Traders are betting U.S. rates will remain elevated for longer, sending Treasury yields higher in recent weeks and in turn boosting the dollar against other major currencies. The U.S. dollar index, which measures the greenback against six currencies including the yen, euro and sterling, was down 0.12% on the day at 107.95. It has been in a holding pattern around 108 all week, and was still hovering close to the two-year high of 108.54 it hit last Friday.Fed Chair Jerome Powell said earlier this month that U.S. central bank officials would be “cautious” about further cuts following an as-expected quarter-point rate reduction.For the month, the dollar index is up 2%, bringing year-to-date gains to 6.4%.In contrast, the BOJ has taken a cautious approach to raising borrowing costs amid uncertainty over U.S. president-elect Donald Trump’s economic plans. This has dragged on the yen, which hit its weakest level since July 17 on Thursday at 158.09 per dollar. The Japanese currency got little respite from a fresh warning from the country’s finance minister who said that the government “has been alarmed by foreign exchange developments … and will take appropriate action against excessive moves”.The yen strengthened 0.1% to 157.75 per dollar by 1305 GMT, but still hovered close to Thursday’s low.Japanese officials have intervened in the currency market to prop up the yen this year but it remains on course for a fourth successive annual decline.A summary of opinions from the BOJ’s December policy meeting released on Friday showed some officials becoming more confident about a near-term rate increase, while others remained wary amid uncertainties over the trend for wages and Trump’s policies. BOJ Governor Kazuo Ueda said last week, after the central bank held rates, that it would take “considerable time” to fully gauge the outlook for wages and overseas economies, particularly the United States. Trump’s mooted looser regulation, tax cuts, tariff hikes and tighter immigration policies are seen as both pro-growth and inflationary by economists.The dollar is on track for a 5.3% gain against the yen this month and a 11.8% advance for the year.”Several market participants signal however that the upward trend in dollar/yen may be exaggerated, which increases the risk of a correction,” said Sydbank analysts in a note.”At the same time, Japanese authorities have indicated possible intervention in the event of rapid and sharp rises in dollar/yen.”DECEMBER RETREATOther major currencies attempted to claw back some ground against the dollar.The euro edged up 0.14% to $1.0439, but was still heading for a 1.3% decline for December. Sterling was up 0.28% at $1.2563 and on track for a 1.4% fall for the month.The Chinese yuan was set to round out the week near a 13-month low, at 7.2994 per dollar in the onshore market. The currency has suffered under the threat of additional U.S. tariffs on Chinese goods under Trump.South Korea’s won was down 0.4% at 1,472.5 per dollar after parliament impeached acting President Han Duck-soo, plunging the country deeper into political chaos. The won dropped to its lowest level in about 16 years ahead of the vote. Leading cryptocurrency bitcoin rose 1% to $96,630, but was largely flat on the month after retreating from a record high of 108,379.28 hit on Dec. 17. It has surged about 127% so far this year. More

According to LSEG Lipper data, U.S. equity funds gained inflows for the seventh week in eight weeks, to the tune of $20.56 billion on a net basis following a sharp $49.7 billion worth of net sales in the previous week.Last Friday’s Commerce Department report revealed the PCE price index rose only 0.1% in November, below analyst expectations, reviving hopes for further Federal Reserve rate cuts next year and bolstering U.S. stocks, which also typically benefit from the “Santa Claus Rally” in the final week of the year.Investors, however, focused investments into U.S. large-cap funds, as they pumped a net $31.67 billion into these funds, the highest since Oct. 2, following $20.94 billion worth of net sales in the prior week.Small-cap, mid-cap and multi-cap funds, meanwhile, experienced outflows of $2.95 billion, $1.17 billion and $853 million, respectively.Sectoral equity funds also witnessed a net $2.14 billion worth of outflows with healthcare and consumer discretionary, having $495 million and $476 million in net sales, leading the way.U.S. bond funds experienced their second consecutive week of outflows, with investors withdrawing a net $5.42 billion. Among the segments, U.S. emerging markets debt, short-to-intermediate investment-grade, and municipal debt funds recorded net sales of $924 million, $899 million, and $879 million, respectively.In contrast, short-to-intermediate government & treasury funds bucked the trend, attracting $957 million in inflows. Meanwhile, U.S. money market funds saw substantial interest, drawing a net $41.72 billion, a sharp reversal from the previous week’s $27.31 billion in net sales. More

TOKYO (Reuters) -Core inflation in Japan’s capital accelerated in December while services inflation held steady, data showed on Friday, keeping alive market expectations for a near-term interest rate hike.But factory output fell in November for the first time in three months, suggesting that softening overseas demand was taking a toll on the export-reliant economy.The data will be among factors the Bank of Japan (BOJ) will scrutinise at its next policy meeting on Jan. 23-24, when some analysts expect it to hike short-term interest rates.The Tokyo core consumer price index (CPI), which excludes volatile fresh food costs, rose 2.4% in December from a year earlier, compared with a median market forecast for a 2.5% gain. It followed a 2.2% year-on-year rise in November.Another index that strips away both fresh food and fuel costs, which is closely watched by the BOJ as a better gauge of demand-driven inflation, rose 1.8% in December from a year earlier after increasing 1.9% in November, the data showed.Service-sector prices rose 1.0% in December after a 0.9% gain in November, underscoring the BOJ’s view that sustained wage gains are prodding firms to charge more for services.”There’s a chance higher wages will be passed onto services prices, which is positive for the BOJ in normalising policy,” said Masato Koike, senior economist at Sompo Institute Plus.The Tokyo inflation data, considered a leading indicator of nationwide trends, is closely watched by policymakers for clues on how much progress Japan is making towards durably meeting the BOJ’s 2% inflation target – a prerequisite for more rate hikes.But some analysts saw signs of weakness in Japan’s economy and price momentum that could delay the BOJ’s rate-hike timing.The increase in Tokyo inflation was driven largely by higher utility bills and the price of food like rice, which could weigh on consumption and discourage firms from hiking prices further.Separate data released on Friday showed factory output fell 2.3% in November from the previous month due to shrinking production of chip equipment and automobile, casting doubt on the strength of Japan’s fragile economic recovery.”When stripping away the effect of rising utility bills, there’s no sign of strength in inflation,” said Toru Suehiro, chief economist at Daiwa Securities, who expects the BOJ to hold off on raising rates in January.The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July on the view Japan was making steady progress on meeting its inflation goal.The BOJ has held rates steady since then, including at last week’s meeting. Governor Kazuo Ueda said he preferred to wait for more data to gauge next year’s wage momentum and for clarity on the incoming U.S. administration’s policy before hiking again.All respondents in a Reuters poll published earlier this month expected the BOJ to hike interest rates to 0.5% by March next year. Its decision to keep rates steady this month has heightened market attention on whether a hike would come at its next meeting on Jan. 23-24, or a subsequent rate review on March 18-19. More