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Dollar index highest since November 2022

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Sterling drops 0.6% to lowest since April

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Yen pinned near five-month low

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Bets on Trump policies leading to stronger dollar remain

in

place

(Updated to New York morning time)

By Karen Brettell

New York, Jan 2 (Reuters) - The U.S. dollar hit a

two-year high on Thursday in the first day of 2025 trading,

building on last year's strong gains on expectations U.S. growth

will beat peers and keep U.S. interest rates relatively

elevated.

The Federal Reserve has indicated that it will be more

cautious in cutting interest rates as inflation remains

stubbornly above its 2% annual target and the economy remains

strong.

Policies by U.S. President-elect Donald Trump are also

expected to boost growth and potentially add to upward price

pressures.

"In terms of 2025 economic growth, there's no rival to the

dollar," Adam Button, chief currency analyst at ForexLive in

Toronto, said.

"Capital flows dominate the turn of the year and the U.S.

stock market has really put to shame every other global market,"

Button added. "The dollar is the only game in town until there

is a genuine stumble in the U.S. economy."

Data on Thursday confirmed a still solid jobs market. The

number of Americans filing new applications for jobless benefits

unexpectedly fell last week, pointing to low layoffs at the end

of 2024.

The dollar index was last up 0.29% on the day at

108.85.

The euro fell as low as $1.0306, its lowest since November

2022, and was last down 0.4% on the day.

Traders anticipate deep interest rate cuts from the European

Central Bank in 2025, with markets pricing in at least four

25-basis-point cuts, while not being certain of even two such

moves from the Fed.

Sterling, which held in better than most major currencies

against the greenback last year, fell 0.98% to $1.2394, its

lowest since April. Its fall accelerated after it broke through

resistance around $1.2475.

The dollar gained 0.03% to 156.92 Japanese yen.

It reached a five-month high above 158.09 yen in late

December, potentially putting pressure on the Bank of Japan,

which is expected to raise interest rates early this year, but

possibly not immediately.

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/

The Australian and New Zealand dollars, meanwhile, rebounded

from two-year lows touched on Tuesday.

The Aussie was 0.39% higher at $0.6215. The kiwi

rose 0.25% to $0.5609.

In cryptocurrencies, bitcoin gained 2.05% to $96,723.