Published by Hannah Lang
NEW YORK (Reuters) – The dollar was on course for its best weekly performance in a month on Friday, as investors priced in the possibility of a slower Federal Reserve rate cut next year, while sterling fell after a dramatic decline in UK economic activity.
The US currency also rose against the yen following reports that the Bank of Japan may forego a rate hike at its meeting next week.
The , which measures the currency against six others, was up 0.037% at 107, set for a weekly gain of nearly 1%, the most in a month.
US data on Thursday showed that the labor market is cooling gradually in line with expectations, and producer price inflation helped to reinforce the market's current position of a Fed cut on December 18, but slower reductions in in 2025.
Markets are fully expecting a cut at the upcoming meeting, but are only pricing in about a 24% chance of another in January, with March the most likely for another move, according to FedWatch CME tool.
“I think there will likely be a long pause, probably for the first quarter of the year from the Fed and then maybe just an incremental interest rate cut here and there while the bank middle trying to update their policy,” said Matt Weller. , head of market research at StoneX.
San Francisco Fed President Mary Daly, for example, said this month that she was comfortable cutting rates in December, but suggested a “more thoughtful and cautious approach” to further reductions.
The dollar rose 0.69% to 153.695 yen, the highest level since late November. The yen has been the worst performer this week against the dollar, which has gained 2% against the Japanese currency.
Traders see only a 23% chance of a quarter-point rate hike by the BOJ on December 19, after reports by Reuters and Bloomberg indicated that officials were forgetting to tighten the timing to wait for more evidence of wage growth and to see how US policy evolves under incoming president Donald Trump.
“Although the outcome is uncertain, one thing is clear: an increase of more than 15 bps would likely trigger a downward movement in dollar/yen as the yen strengthens,” said a market analyst. City Index, David Scutt.
“On the other hand, if the BoJ keeps rates unchanged, there is a good chance of an upside reaction.”
EUROPE UNDER POWER
In Europe, the pound fell after data showed the UK economy moved unexpectedly in October, adding to signs of a bigger-than-expected slowdown. The Office for National Statistics said the economy contracted 0.1% in October, compared with forecasts in a Reuters poll for growth of 0.1%.
Sterling was last down 0.45% at $1.2616, around its weakest level since the start of the month.
The euro pared earlier losses against the dollar and rose 0.26% to $1.04945. The European Central Bank on Thursday cut rates by 25 basis points and kept the door open for further easing.
The Swiss franc remained under pressure after the central bank's shock half-point rate cut the previous day. The highest value of the Swiss franc division was 0.892 Euro.
Rate cuts and the threat of US tariff hikes have sent the Canadian dollar to a 4-1/2 year low. (CAD/)
Held at 7.281 per dollar in the offshore market. Reuters reported this week that China is considering allowing its currency to fall further to counter the effects of any US trade war.
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