Asian shares retreated on Thursday in a subdued trading session as holiday closures thinned activity, scaling back some of the week's earlier gains. Meanwhile, the U.S. dollar strengthened, bolstered by rising Treasury yields, as investors kept their attention firmly on the Federal Reserve's interest rate outlook heading into the new year. The dollar index hovered near a two-year high at 108.15, set to notch a monthly gain of over 2% against a basket of currencies. This reflected its dominance across global markets and its impact on currency movements.

Asia-Pacific Markets
Markets in Hong Kong, Australia, and New Zealand were closed for public holidays, adding to the muted trading volume. However, the Australian and New Zealand dollars bore the brunt of the dollar's ascent, with the Aussie falling 0.5% to $0.6238.
Japan announced a slight increase in the issuance of Japanese government bonds for the next fiscal year, raising the total to 172.3 trillion yen—the first increase in four years. The yen remained under pressure, lingering near a five-month low at 157.35 per dollar, reflecting ongoing challenges against the strengthening greenback.

European Markets
Looking ahead to 2025, global monetary policy appears poised for caution, influenced partly by geopolitical shifts, including U.S. President-elect Donald Trump's upcoming tenure.
The Bank of England recently held its key policy rates steady, signaling adherence to its "gradual approach" to rate cuts. Markets are pricing in approximately 52 basis points of rate reductions by the end of 2025, reflecting tempered expectations for easing in the face of persistent uncertainties.

American Markets
In the United States, Federal Reserve Chair Jerome Powell’s recent comments have signaled a more restrained pace of rate cuts for 2025. Markets are now pricing in about 35 basis points of easing for the year, significantly lower than earlier expectations. This shift has pushed U.S. Treasury yields higher, further boosting the dollar. The dollar's strength has weighed on commodities and gold prices, presenting a challenging environment for asset classes sensitive to currency movements. Analysts speculate that the Fed might skip rate adjustments during the January FOMC meeting, opting instead to await additional data before deciding whether to resume or conclude its rate-cutting cycle. 
As the year winds down, the Federal Reserve's policy trajectory remains the key driver shaping market sentiment, with investors keeping a close eye on economic indicators to gauge the central bank's next moves.