The U.S. dollar hovered near a five-week low against major global currencies on Friday, as investors prepared for a possible Federal Reserve rate cut next week.
The greenback was especially weak against the Japanese yen. The yen rose to its highest level in nearly three weeks, supported by expectations that the Bank of Japan will resume its rate-hike cycle later this month.
Markets widely anticipate a quarter-point rate cut when the Federal Open Market Committee meets on December 9–10. Traders will also look for clues on how much further easing may follow.
The dollar index, which tracks the U.S. currency against six major peers, slipped 0.2% to 98.929 at 06:23 GMT. This decline brought it closer to Thursday’s five-week low of 98.765. The index is on track for a 0.6% weekly drop.
According to LSEG data, traders are pricing in roughly an 86% chance of a rate cut on Wednesday, with expectations building for two or three additional reductions next year.
Federal Reserve officials have been monitoring labour market trends closely as they assess whether more support is needed. Jobless claims fell to their lowest level in more than three years last week, although the Thanksgiving holiday may have influenced the figures.
The broader data picture remains incomplete. The record-long government shutdown delayed key economic releases, and some data was never collected at all.
Normally, monthly payrolls data would be released on Friday, but publication has been postponed until mid-December. The previous month’s report was also never issued.
Instead, one of the Fed’s preferred inflation measures—the PCE deflator—will be released later today, though the data covers September. Economists surveyed by LSEG expect core inflation to rise 0.2% month-on-month.
“A 0.2% or lower increase would support an FOMC rate cut next week,” said Carol Kong, currency strategist at Commonwealth Bank of Australia. She added that a softer rise of 0.1% is possible.
The dollar has also come under pressure from speculation surrounding future Fed leadership. Investors are weighing the possibility that Kevin Hassett, the White House economic adviser, could replace Jerome Powell when Powell’s term ends in May. Markets expect Hassett to favour more rate cuts.
The dollar fell 0.3% to 154.46 yen, its lowest since November 17.
Meanwhile, Bloomberg reported that BOJ officials are prepared to raise rates on December 19 unless major economic shocks occur. This followed a Reuters report from three sources indicating a high likelihood of a rate hike this month.
The euro gained 0.1% to $1.1659, moving back toward Thursday’s three-week high of $1.1682.
Sterling rose 0.2% to $1.33505, nearing its recent six-week peak of $1.3385.
Next week will bring a series of central bank decisions. The Reserve Bank of Australia decides on Tuesday, followed by the Bank of Canada on Wednesday and the Swiss National Bank on Thursday.
The following week includes meetings from the Bank of Japan, European Central Bank, Bank of England, and Sweden’s Riksbank.
The Australian dollar advanced 0.3% to $0.6626, reaching a two-month high.
The Swiss franc added 0.1% to 0.8026 per dollar after retreating from Wednesday’s two-week high of 0.7992.
