Dollar Dominance Continues as Stock Markets Waver
A look at the day ahead in European and global markets from Ankur Banerjee
While stock markets shrugged off the dim start to 2025, the higher-for-longer U.S. rates theme has left the dollar's dominance intact, leaving the euro and sterling near multi-month lows.
Beyond the worries of the U.S. central bank's measured rate cut path for 2025, investors are also grappling with how President-elect Donald Trump's policies will play out regarding inflation, growth and tariffs.
European stock markets are set for a mellow open after Asian equities ended the week on a high, buoyed by South Korean shares. Japan remains closed for a holiday.
Focus will be on whether the pan-European STOXX 600 index can build on its steady start to 2025 after clocking a 6% rise last year.
European markets and the euro have been hampered in the past few months by uncertainty around diverging interest rate paths for Europe and the United States as well as the political quagmire in France and Germany.
The threat of tariffs from the incoming Trump administration has also weighed on sentiment.
That has left the euro wallowing at levels not seen since November 2022 after the single currency fell over 6% last year.
Traders anticipate deep rate cuts from the European Central Bank in 2025, with markets pricing in at least four 25 basis point cuts, while not being certain of even two such moves from the Federal Reserve.
The pound though has fared a lot better than other G10 currencies against the greenback's rise, declining just 1.7% against the dollar in 2024. It touched a nine-month low to kick off the New Year and remained rooted near those levels on Friday.
All hail King Dollar?
In company news, Tesla reported its first fall in annual deliveries as lucrative year-end incentives failed to lure customers wary of high borrowing costs.
Meanwhile, U.S. President Joe Biden, with less than three weeks left in his tenure, has decided to block Nippon Steel's proposed purchase of U.S. Steel, the Washington Post reported.
Key developments that could influence markets on Friday:
Economic events: German unemployment data for Dec; UK mortgage lending data for November
(by Ankur Banerjee in Singapore)
