The U.S. dollar commenced 2025 with impressive gains against several major currencies, including the euro, British pound, and Australian dollar. The greenback also strengthened against the Canadian dollar, Swiss franc, and Swedish krona, although it saw a decline against the Japanese yen during the first week. By January 3, the Dollar Index, which evaluates the dollar's strength against six other currencies, had climbed nearly one percent.
The Dollar Index, an indicator of the dollar’s performance relative to a basket of six major currencies, surged by 0.88 percent in the week concluding January 3. Starting from 108.00 on December 27, the index advanced to 108.95 within the span of a week. This was propelled by unexpectedly strong U.S. labor market data, reinforcing the Federal Reserve’s hawkish position, which lifted the index from 107.74 on Monday to a multi-month high of 109.53 by Thursday.
The dollar experienced a significant boost on Thursday following a drop in initial jobless claims for the week ending December 28 to 211,000, marking an eight-month low. This was contrary to market expectations of a rise to 222,000 from 219,000 the previous week. The unexpected dip highlighted the robustness of the U.S. labor market and economy, suggesting a continuation of a hawkish monetary policy by the Federal Reserve.
In a climate of a strengthening dollar and PMI data indicating continued contraction, the euro fell by 1.14 percent against the U.S. dollar over the week. Data released Thursday pointed to the HCOB Eurozone Manufacturing PMI at 45.1 for December, slightly down from 45.2 in November. This marked the steepest decline in manufacturing activity in three months, extending the persistent two-year contraction trend.
The EUR/USD pair declined from a level of 1.0427 on the last Friday of December to 1.0308 by January 3. The trading range was broad, between a high of 1.0459 recorded on Monday and a two-year low of 1.0224 reached on Thursday.
Meanwhile, the British pound depreciated by 1.26 percent against the dollar for the week ended January 3. The GBP/USD pair dropped from 1.2579 to 1.2420 over the week. The trading range fluctuated between 1.2608 and 1.2351, influenced by data showing manufacturing PMI falling short of expectations.
According to S&P Global, the manufacturing PMI fell to 47 in December, down from 48 in November, and fell short of initial market predictions of 48.2. These figures indicated the fastest contraction in U.K. manufacturing activity in 11 months, fueling expectations of a supportive monetary policy move from the Bank of England.
The Australian dollar also weakened slightly against the U.S. dollar in the week ending January 3. The AUD/USD pair saw a minor slide of 0.05 percent, dipping from 0.621 to 0.6212, against the backdrop of a larger-than-anticipated decline in manufacturing PMI readings. The Australian dollar fluctuated between $0.6248 and $0.6179 during the opening week of 2024.
Conversely, the yen gained ground against the dollar during the week ending January 3, driven by speculation of a potential rate hike by the Bank of Japan. The USD/JPY pair fell from 157.82 to 157.27. This 0.35-percent decline followed fluctuations between 158.09 on Monday and 156.01 on Tuesday.
The upcoming week, January 6-10, promises a wealth of key data releases, including the FOMC Minutes and the U.S. Non-farm payrolls data. Also scheduled are preliminary inflation figures from Germany, France, and the Euro Area, along with services PMI, job openings data from the U.S., Japan’s consumer confidence index, and the Euro Area's unemployment rate.
Amidst a broad dollar weakness, the Dollar Index has dipped over a percent to 107.79. The EUR/USD pair has risen to 1.0416 while the GBP/USD pair has advanced to 1.2529. The AUD/USD pair is currently at 0.6293. Meanwhile, the USD/JPY pair has further declined to 156.66.
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