The US Dollar Holds Firm Amid Persistent Inflation and Market Uncertainty

With the financial year coming to a close, the US Dollar remains strong. Recent inflation data shows that service prices in the US are still rising, leading many to believe the Federal Reserve won’t cut interest rates as much as expected in 2025. This has kept the Dollar steady, as a hawkish outlook—suggesting higher interest rates—makes the currency more attractive to investors seeking better returns, helping it maintain gains secured after President Trump’s election in November.

In Europe, bond yields are rising as political deadlock continues, putting pressure on the Euro. However, there’s a lot of negativity already priced into the Euro. If Germany or France see any political improvements or if geopolitical tensions ease, the Euro could recover sharply. We believe the Euro will find support at 1.0500 against the Dollar and could climb to 1.0700 by year-end. With so much negativity built in, any good news could push investors to sell their Dollar positions.

In the UK, the new Labour government is dealing with slow economic growth and tax increases, which are making it hard for the Bank of England to cut interest rates quickly. This challenge isn’t unique to the UK—many central banks are now making decisions on a meeting-by-meeting basis without giving clear guidance. This uncertainty is driving volatility in currency markets, a trend that’s likely to continue into the New Year.

Our short term predictions for the currency markets are as follows;

Euro/Dollar is presently @ 1.0500 and we see a move back to 1.0700 by year end.

Sterling/Dollar is presently 1.2700 and we see a move back to 1.2850 by year end.

Euro/Sterling is presently 0.8260 and we see a move back to 0.8350 by year end.