January Currency Moves: USD Steady, Euro Weakens

Thanh Vân (Theo Reuters) |

As January 2025 comes to a close, the USD holds its high position, the Yen has the strongest increase in 7 years, while the Euro, British Pound and Canadian Dollar weaken.

USD continues to dominate the market

The US dollar index – which measures the strength of the greenback against a basket of six major currencies – rose to 108.33 on January 31. The Fed maintained high interest rates and has no plans to cut them anytime soon, helping the dollar maintain its position.

Tony Sycamore of IG told Reuters that the USD could maintain its strength if the US administration continues its tough policy on tariffs. However, if the Fed signals a rate cut in the second half of the year, the USD could adjust slightly lower.

Yen posts best January in 7 years

After a period of weakness, the Japanese yen recovered strongly, trading at 154.19 yen per dollar. Overall, the currency increased 1.9% in January, marking its best January since 2018.

The main reason is the expectation that the Bank of Japan (BoJ) will raise interest rates this year. Tokyo inflation data reached 2.5% in January, the highest in nearly a year, further reinforcing this expectation.

However, BoJ Governor Kazuo Ueda remains cautious, insisting that loose monetary policy needs to be maintained to ensure sustained inflation. Therefore, according to City Index, although the yen is recovering, the market has not yet seen a strong reaction as a safe haven.

Euro and pound weaken under economic pressure

The euro traded at $1.0367, down 0.24% for the month. The European Central Bank (ECB) has just cut interest rates and left open the possibility of further adjustments, as the eurozone economy slows.

Meanwhile, the pound lost 0.7% in January, currently trading at $1.2403. The main reason was a sharp rise in UK government bond yields and concerns about the country's financial outlook. The Bank of England (BoE) is expected to cut interest rates this year, which continues to put pressure on the pound.

According to Fiona Cincotta, strategist at City Index, the pound is still under pressure from domestic financial concerns. If the BoE cuts interest rates soon, the pound could continue to weaken against the dollar.

Mexican Peso and Canadian Dollar in Trouble

The Mexican peso fell nearly 2% for the month, currently trading at 20.6643 pesos per dollar, marking its worst performance since October 2024. The main reason was concerns about US President Donald Trump's decision to impose a 25% tariff on imports from Mexico and Canada on February 1.

The Canadian dollar (CAD) also weakened, falling to a five-year low, currently trading at CAD1.4477/USD. If the US officially imposes tariffs, the CAD could continue to be under pressure in the coming period.

Options data show that hedging demand for the Mexican peso and Canadian dollar has surged, but the market reaction has been muted, suggesting investors are more subdued than they have been in previous trade tensions, according to Tony Sycamore.

Yuan depreciates, Australian and New Zealand dollars recover weakly

The yuan (CNY) fell to its lowest level since 2023 on concerns about China's economy and trade risks with the US. The People's Bank of China has intervened to support the currency but has failed to reverse the downward trend.

The Australian dollar (AUD) and New Zealand dollar (NZD) recovered slightly from recent lows, but still face pressure from volatile commodity prices and global monetary policy.

Currency Market Outlook

According to analysts, the currency market trend in the coming time will depend largely on the monetary policies of central banks and geopolitical fluctuations.

USD: If the Fed continues to maintain a cautious stance, the USD could hold its ground in the first half of 2025. However, if there are signs of monetary easing, the USD could correct lower.

Japanese Yen: The yen could continue to recover if the BoJ gives a clearer signal on its plans to raise interest rates. However, the large interest rate differential between Japan and the US remains an obstacle to further gains.

Euro and Pound: Both currencies remain under pressure from the ECB and BoE monetary policy. If inflation in Europe continues to fall, the possibility of further QE will increase, leading to a weakening of the euro and pound.

Mexican Peso and Canadian Dollar: US-Mexico-Canada trade tensions are a major factor in determining the direction of these two currencies. If the Trump administration officially imposes tariffs, both the peso and CAD could come under further pressure.

The currency market is expected to continue to fluctuate strongly, especially in the context that major central banks still do not have a clear strategy on adjusting interest rate policies in 2025.

Thanh Vân (Theo Reuters)
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