Dollar is on pace to have its best week of the month

On predictions that the U.S. economy would continue to outperform its counterparts internationally this year and that U.S. interest rates will remain comparatively higher, the dollar fell on Friday but was still on course for its best weekly performance in a month.

In recent weeks, Treasury rates have increased and demand for the U.S. dollar has increased due to a still strong labor market and persistently high inflation.

It is anticipated that new policies implemented by the upcoming Donald Trump administration—such as tax cuts, corporate deregulation, restrictions on illegal immigration, and tariffs—will increase growth and increase pricing pressures.

After reaching a two-year high of 109.54 on Thursday, the dollar index ended the day down 0.28% at 108.91. It is expected to gain 0.85% every week.

Notwithstanding recent dollar advances, there is still a great deal of uncertainty over the timing and final effects of the policies that the new U.S. administration will implement. That may temporarily halt the dollar’s rise.

“We’re likely to see a bit of a dollar pullback as the administration comes in because all these proposed tariffs – they’re going to take some time to implement and we don’t actually know if all of these proposals are going to be implemented or not,” Helen Given, an FX trader at Monex USA in Washington, DC.

“As we move through the second half of this calendar year, I think we’re going to see some more dollar strength,” Given stated.

Following statistics released on Friday that indicated U.S. manufacturing was getting closer to recovery in December, with production increasing and new orders increasing even more, the dollar momentarily reduced losses.

With the European Central Bank predicted to lower interest rates more than the Federal Reserve this year, the euro faces a bleaker economic outlook and might be harmed by U.S. tariffs.

By the end of the year, traders are pricing in a 100 basis point rate decrease by the ECB and a less than certain 50 basis point rate cut by the Fed.

The single currency is also being impacted by uncertainties, like as the German elections and the French budget dispute.

Although the euro was up 0.39% at $1.0305 last week, it was on track to drop 1.22% weekly, the most since early November.

At $1.2431, sterling increased by 0.41%. It was expected to drop the most since early November, at 1.15%, for the week.

The dollar fell 0.26% to 157.11 Japanese yen, remaining slightly below a December five-month high of 158.09.

The significant interest rate difference between the United States and Japan has hurt the value of the Japanese yen, and the Bank of Japan’s reluctance to raise rates further is only going to make matters worse.

As decreasing rates and anticipation of further domestic rate cuts continued to pressure the currency, China’s onshore yuan fell to 7.3199 per dollar, its lowest level in more than a year.

Bitcoin increased by 1.59 percent to $98,658.