The U.S. dollar moved slightly lower on Friday but stayed within its recent trading range. Traders remained focused on next week’s Federal Reserve meeting, where policymakers are widely expected to cut interest rates.
The dollar index slipped 0.2% to 98.906, holding close to Thursday’s five-week low of 98.765. The euro rose 0.1% to $1.1651, near its three-week high of $1.1681.
Market data from LSEG shows traders assigning nearly a 90% chance of a Fed rate cut next week, with the possibility of two additional cuts in the coming year.
According to Antonio Ruggiero, FX and macro strategist at Convera, softer labor market data helped reinforce expectations for a rate cut. He added that the dollar still appears overvalued compared to other major currencies, making its recent weakness justified.
Better-than-expected U.S. consumer sentiment data released on Friday failed to lift the dollar.
Revised figures from the Bureau of Economic Analysis showed the Personal Consumption Expenditures (PCE) Price Index rose 0.3% in September, matching August’s increase. The core PCE index, which excludes food and energy, rose 0.2% for the second straight month.
Investors are also watching developments in Washington. White House economic adviser Kevin Hassett is being considered as the next Fed chair once Jerome Powell’s term ends in May. Hassett is viewed as more dovish and is expected to support additional rate cuts.
Chris Turner, ING’s global head of markets, noted that the dollar remains under pressure due to expectations of a rate cut and the potential appointment of Hassett.
Labor market data also influenced sentiment. Jobless claims fell to their lowest level in more than three years, although the Thanksgiving holiday may have affected the numbers.
Yen pauses after recent strength
The Japanese yen was mostly unchanged at 155.15 per dollar. It has strengthened in recent sessions on expectations that the Bank of Japan may raise interest rates this month. Bloomberg reported that BOJ officials are prepared to hike rates on December 19 unless a major economic shock occurs. Similar reporting from Reuters also pointed to a likely increase.
Ruggiero noted that unwinding carry trades could further support the yen if Japanese rates rise.
Sterling gained 0.2% to $1.335, moving closer to its six-week high of $1.3385.
Next week will bring several major central bank decisions. The Reserve Bank of Australia announces policy on Tuesday, followed by the Bank of Canada on Wednesday and the Swiss National Bank on Thursday. The Federal Reserve will also issue its statement on Wednesday.
The following week features decisions from the Bank of Japan, the European Central Bank, the Bank of England and Sweden’s Riksbank.
Bitcoin traded lower for a second straight day, falling 1% to $90,975.
