The market expects the Federal Reserve to take a more cautious approach to rate cuts, and the dollar hits a two-year high

On January 2, the US dollar index rose to a two-year high as the market expected the Federal Reserve to adopt a more cautious approach to rate cuts in 2025. The market is betting that President-elect Trump's policies, including proposed trade tariffs and tax cuts, will exacerbate inflation and limit rate cuts. Danske Bank's Mohammed Saraf stated in a report: "Due to the resilience of the US economy, the market currently expects no more than two rate cuts of 25 basis points each throughout the year, which will support the dollar." Last December, the Federal Reserve also hinted at slowing down its pace of rate cuts.