The dollar climbed to a 2.5-week high against major currencies on Friday, poised for its strongest weekly performance in a month. This gain is fueled by expectations that the Federal Reserve will lower interest rates next week while adopting a cautious stance on further cuts.
The greenback also strengthened against the euro and Swiss franc following rate reductions by their respective central banks, as well as against the yen amid speculation that the Bank of Japan will hold off on a rate hike at its upcoming meeting.
The dollar index, which tracks the currency against the euro, yen, and three other major currencies, edged up to 107.05, its highest level since November 26. The index has risen over 1% this week.
Although U.S. producer price data showed some softness despite a strong headline figure, it reinforced expectations of a Fed rate cut on December 18. Additionally, an increase in unemployment claims signaled a gradual cooling of the labor market, aligning with forecasts.
Traders widely anticipate an easing of rates at the upcoming meeting, assigning a 21% probability of another cut in January, according to CME’s FedWatch tool.
“Recent Fed commentary and economic data indicate that progress toward the inflation target has slowed, while the economy remains resilient. This gives policymakers room to adopt a more measured approach to easing through 2025,” said Rodrigo Catril, senior FX strategist at National Australia Bank.
San Francisco Fed President Mary Daly recently expressed support for a rate cut this month but emphasized the importance of a “thoughtful and cautious approach” to any further reductions.As of 01:32 GMT, the dollar rose 0.19% to 152.935 yen, briefly touching a high of 152.965—the strongest level since November 27.
Traders estimate a 23% probability of a quarter-point rate hike by the Bank of Japan on December 19, following reports from Reuters and Bloomberg suggesting officials may hold off on tightening to await clearer evidence of wage growth and assess U.S. policy direction under incoming President Donald Trump. This week, the dollar has gained approximately 1.9% against the yen, marking its best weekly performance since late September.
The dollar remained steady at 0.89235 francs after a sharp 0.93% rally overnight, spurred by the Swiss National Bank’s unexpected half-point rate cut. For the week, the dollar has risen 1.6% against the franc, also its best showing since September.
The euro traded at $1.0464, largely unchanged after a 0.27% drop overnight, extending its losing streak to five days and leaving it down nearly 1% for the week. The European Central Bank on Thursday reduced rates by 25 basis points and signaled openness to further easing as inflation nears target levels and the economy struggles.
The British pound edged down slightly to $1.2665.
In offshore markets, the Chinese yuan slipped to 7.2811 per dollar, remaining under pressure after a Reuters report indicated Beijing might allow the currency to depreciate further to offset potential impacts from a U.S. trade war.
The yuan showed little reaction to a Thursday pledge by Chinese authorities to increase the budget deficit, issue more debt, and loosen monetary policy to support stable economic growth.The Australian dollar, often seen as a liquid proxy for China’s currency due to close trade ties, slipped to $0.6365. It edged closer to Wednesday’s more than one-year low, erasing all of Thursday’s gains driven by stronger-than-expected labor data.
Bitcoin held steady at $99,454, stabilizing near the $99,500 level after its surge to a record high of $103,649 on December 5.
