The new year has begun much like 2024 ended, with global markets grappling with uncertainty and the U.S. dollar maintaining its position of strength. Investors are betting on limited Federal Reserve rate cuts this year, sustaining the dollar’s dominance in financial markets.
U.S. equities started the year on shaky ground. The S&P 500 slipped for a fifth consecutive session on Thursday, marking its longest losing streak since April 2024. Similarly, the Nasdaq Composite also registered its fifth straight daily decline, reflecting investor caution as the Federal Reserve appears unlikely to pivot toward significant rate reductions anytime soon.

Asia-Pacific Markets
In Asia, fears over China’s economic growth have intensified. The CSI300, a benchmark index of China’s largest listed companies, plunged 5.2% this week—the steepest weekly drop since October 2022. The Chinese yuan depreciated beyond the critical 7.3 per dollar threshold, reaching a 14-month low. This slide is driven by weaker Chinese bond yields, expectations of further rate cuts, and the persistent strength of the U.S. dollar. Adding to the pressure are concerns about potential tariffs from the incoming U.S. administration, further clouding China’s economic outlook.

European Markets
The dollar index, while slightly softer on Friday, remains near a multi-year high. This has driven the euro closer to parity with the greenback, touching a two-year low of $1.0225 on Thursday. Meanwhile, the British pound has fallen to multi-month lows.
European equities have also struggled, with the STOXX 600 posting its worst quarterly performance in over two years during the fourth quarter of 2024. Sentiment across the region is further weighed down by the threat of U.S. tariffs.

American Markets
Robust U.S. labor market data reinforces the dollar’s dominance. Jobless claims fell to an eight-month low last week, signaling continued strength in employment. This resilience in the labor market dampens hopes for near-term Federal Reserve rate cuts, as lower borrowing costs are contingent on a weakening employment picture and subdued inflation. Currently, the probability of a rate cut at the Fed’s January meeting hovers around 11%. With rates likely to remain elevated, the dollar is poised to continue its reign as the preferred safe-haven asset.