The Fed’s announcement on December 18 of a 0.25 percentage point rate cut—accompanied by plans to lower rates by only 0.5 percentage points next year instead of the anticipated 1 percentage point—caused turmoil in global markets. The U.S. dollar surged, pushing the Dollar Index above the key 108 resistance level, reaching its highest point since November 2022. Meanwhile, the 10-year U.S. Treasury yield rose by 11 basis points to a six-and-a-half-month high of 4.51%.
In contrast, the European Central Bank (ECB) is expected to maintain a more accommodative monetary policy, projecting at least a 1 percentage point rate cut in 2025 to address the economic challenges facing the Eurozone. Analysts speculate that the ECB may accelerate rate cuts due to economic headwinds, including China’s slowing economy, political instability, and the potential economic impact of Donald Trump’s second presidential term.
Last week, the ECB implemented its fourth 0.25 percentage point rate cut of the year. While ECB President Christine Lagarde affirmed the bank’s commitment to tightening monetary policy, she acknowledged the possibility of further rate reductions if economic data aligns with expectations. Lagarde also warned that Trump’s protectionist trade policies could negatively affect Eurozone growth.
The Fed’s actions have also impacted other currencies, with non-USD currencies like the Canadian dollar (CAD), Australian dollar (AUD), and New Zealand dollar (NZD) dropping to multi-year lows. The CAD, for instance, fell to its weakest level since March 2020, as Trump’s announcement of a 25% tariff on Canadian imports added pressure.
The euro’s decline underscores the shifting dynamics in global monetary policy and the challenges facing central banks in navigating uncertain economic and political landscapes.
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Source: Vietnam Insider