FOREX-Dollar eases in cautious start to 2025; yen lingers at five-month lows

Dollar eases; remains near two-year high

Yen loiters near five-month lows; fresh off 10% drop last year

Investors brace for U.S. rates staying higher for longer

Markets await incoming Trump administration policies

Updates to mid Asia afternoon

By Ankur Banerjee

SINGAPORE, Jan 2 (Reuters) - The U.S. dollar wobbled at the start of 2025 trade on Thursday after a strong year of gain against most currencies, with the yen anchored near its lowest level in more than five months as investors ponder U.S. interest rates staying higher for longer.

Market focus early in the year will be on the incoming Trump administration and its policies that are widely expected to not only boost growth but also add to price pressure. That will underpin U.S. Treasury yields and boost dollar demand.

A wide interest rate difference between the U.S. and other economies has cast a shadow over the foreign exchange market over the past year, resulting in most currencies declining sharply against the dollar in 2024.

None more so than the yen JPY=EBS, which slid more than 10% in 2024 for its fourth year of decline. It was little changed on the first trading day of 2025 at 157.10 per dollar, not far from the five-month low touched on Tuesday, keeping traders wary of intervention from Japanese authorities.

Markets in Japan are closed for the rest of the week.

The dollar index =USD, which measures the U.S. currency against six others, eased 0.2% to 108.32 on Thursday but remained close to the two-year high touched on Tuesday. The index rose 7% in 2024 as traders drastically cut back rate-cut expectations.

"The U.S. dollar is likely to remain in pole position (this year) given its still-high yield, U.S. exceptionalism and its safe-haven appeal in uncertain times," said Saxo Chief Investment Strategist Charu Chanana.

Weaker growth outlook outside the U.S., geopolitical tension in the Middle East and the Russia-Ukraine war have added to demand for the dollar.

The euro EUR=EBS was 0.11% higher at $1.0366 on Thursday after dropping more than 6% in 2024. Traders anticipate deeper interest rate cuts from the European Central Bank in 2025, with markets pricing in 113 basis points of easing versus 42 bps of cuts priced in from the U.S. central bank.

Sterling GBP=D3 last fetched $1.2519. It fell 1.7% last year but was nevertheless the best-performing G10 currency versus the dollar, mainly as the British economy held up better than was widely expected.

China's yuan languished at 14 month lows as worries about the health of the world's second-biggest economy, the prospect of U.S. import tariffs from the Trump administration and sliding local yields weighed on investor sentiment. CNY/

After falling 2.8% against the greenback in 2024 for its third consecutive year of loss, the onshore yuan CNY=CFXS bounced from lows of 7.31 per dollar. Traders said that could reflect authorities' desire to rein in the currency's slide before Donald Trump returns to the White House.

The Australian and New Zealand dollars both drifted away from the two-year lows touched on Tuesday. The Aussie AUD=D3 was 0.36% higher at $0.6215 having dropped 9% in 2024, its weakest yearly performance since 2018. AUD/

The kiwi NZD=D3 clocked an 11.4% decline last year, its softest performance since 2015. On Thursday, it rose 0.52% to $0.5617.

World FX rates https://tmsnrt.rs/2RBWI5E

G10 currencies versus the U.S. dollar in 2024 https://reut.rs/4a0LGQD

(Reporting by Ankur Banerjee in Singapore; Editing by Christopher Cushing)

((ankur.banerjee@thomsonreuters.com;; Mobile - +65 8121 3925; Follow on X (formerly Twitter): @AnkurBanerjee17;))