Investing.com – The U.S. dollar rose on Tuesday on frail holiday-led trade, maintaining recent strength as investors braced for fewer Federal Reserve interest rate cuts in 2025.

At 04:25 ET (09:25 GMT), the Dollar Index, which tracks the dollar against a basket of six other currencies, was trading 0.1% higher at 107.905, near a recent two-year high.

The dollar remains in demand

The dollar has been in demand since the Federal Reserve presented a hawkish interest rate outlook at its final policy meeting of the year last week, forecasting just two 25-bp rate cuts in 2025.

In fact, markets are currently pricing in monetary easing of around 35 basis points for 2025, which in turn has caused U.S. Treasury yields to soar, which has supported the dollar.

The two-year Treasury yield was last at 4.34%, while the benchmark 10-year Treasury yield remained near a seven-month high of 4.59%.

“We believe that this hawkish redefinition of the Fed’s statement will lay the foundations for a lasting strengthening of the dollar in the new year,” ING analysts said in a note.

Trading volumes are likely to decline as we approach the end of the year and this trading week will be shortened due to the holiday season.

The euro is close to its lowest level in two years

In Europe, it fell 0.1% to 1.0396, near a two-year low, with the intention of cutting interest rates faster than its US rival as the euro zone struggles to record any growth.

Earlier this month, the ECB cut its key interest rate for the fourth time this year, and President Christine Lagarde said earlier this week that the euro zone was “very close” to meeting the central bank’s medium-term inflation target.

“If incoming data continue to confirm our baseline scenario, the direction of development is clear and we expect further reductions in interest rates,” Lagarde said in a speech in Vilnius.

Inflation in the euro zone was 2.3% last month and the ECB expects to reach its target of 2% next year.

quotations remained unchanged at 1.2531, with sterling showing signs of weakness after data showed the British economy failed to grow in the third quarter and Bank of England policymakers voted 6-3 last week to keep interest rates unchanged, which means a more dovish split than expected.

The position of the Bank of Japan in the spotlight

In Asia, it fell 0.1% to 157.03, after rising as high as 158 yen in recent sessions, on a signal that it would take time to consider further interest rate hikes.

rose 0.1% to 7.3021, remaining near a one-year high, as the prospect of greater fiscal spending and looser monetary conditions in the coming year weighed on the currency.

Beijing has signaled it will raise fiscal spending in 2025 to support slowing economic growth.