The U.S. dollar weakened on Thursday as traders headed into the new year, but the greenback remained close to a two-year high seen earlier in the week and is likely to remain supported in the near term given a more hawkish Fed stance and expectations for the incoming Trump administration.

At 4:45 AM ET (09:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 108.215, but remained close to a two-year high hit on Tuesday.

Dollar to remain in demand in 2025

The index rose 7% in 2024 as traders sharply cut expectations for a Fed rate cut after policymakers forecast a 25-bps cut after their December policy-setting meeting.

The U.S. central bank projected just two more rate cuts of 25 basis points in 2025 at its last policy meeting this year, a sharp downgrade from the four cuts it had indicated in September.

In fact, markets are currently pricing in just 42 bps of cuts from the U.S. central bank in 2025, with Donald Trump's return to the White House adding to the uncertainty given his policies of regulatory easing, tax cuts, tariff hikes and immigration tightening are seen as pro-growth and inflationary.

Focus shifts to the release of weekly unemployment figures later in the session as well as December's S&P Global manufacturing PMI, for clues on the strength of the U.S. economy.

Source: Investing.com