BUZZ-COMMENT-Dollar firms but strong views weakly held to begin 2025

Jan 2 (Reuters) - The dollar has kicked off 2025 in similar vein to how it closed 2024, on the front foot. After a 7% rise in the greenback last year, the best yearly return since 2022, many factors that contributed to this outperformance remain in place. The path of least resistance remains tilted in favour of dollar upside.

However, as traders reset their yearly performance to flat, FX price action is likely to be somewhat skittish, where strong views are weakly held to begin the year.

After the most hawkish Fed meeting in recent times, the focus outside of the U.S. data will be on the fiscal side as President-elect Donald Trump is about to embark on his second term at the White House.

Much is still unknown about whether the Trump administration will place tariffs from day one in office or phase-in increases, the latter likely to see the dollar come under modest pressure.

With this in mind, headline sensitivity should be elevated leading into the U.S. inauguration, which also means that traders are likely to be better off reacting to the headlines as opposed to pre-positioning in anticipation of a potential event.

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(Justin McQueen is a Reuters market analyst. The views expressed are his own.)

((justin.mcqueen@thomsonreuters.com))