The U.S. dollar stabilized on Friday but remained on track for a third straight weekly decline following the Federal Reserve’s interest rate cut earlier this week. The move pushed U.S. borrowing costs to their lowest level in nearly three years, increasing pressure on the currency.
By 04:00 ET (09:00 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, was little changed at 97.995. Despite the flat session, the index was still heading for a weekly loss of around 0.7%.
So far this year, the dollar has fallen more than 9%, putting it on pace for its largest annual decline since 2017.
Dollar pressured after Federal Reserve decision
The Federal Reserve lowered interest rates by 25 basis points, in line with market expectations. However, comments from Chair Jerome Powell during the post-meeting press conference were perceived as more balanced and less hawkish than anticipated.
Fed officials also projected another rate cut next year, despite internal divisions over the December policy move.
According to analysts at ING, downward pressure on the dollar is being driven by both monetary policy and seasonal factors. They noted that U.S. rate expectations were revised lower again, with the two-year Treasury yield falling to 3.50%, while markets are now pricing a terminal Fed rate of 3.05% by the end of next year.
Looking ahead, investor attention will remain on delayed U.S. economic data affected by the 43-day federal government shutdown in October and November, as well as uncertainty surrounding the appointment of the next Fed chair.
Sterling weakens after UK GDP contraction
In Europe, GBP/USD slipped 0.1% to 1.3383, retreating from its strongest level since October. The move followed data showing that the UK economy unexpectedly contracted in October, with uncertainty ahead of the Autumn budget weighing on sentiment.
Figures released by the Office for National Statistics showed that UK GDP declined 0.1% month-on-month, matching September’s drop and missing expectations for modest growth.
The Bank of England is scheduled to hold its final policy meeting of the year next week and is widely expected to cut interest rates by 25 basis points to 3.75%, as inflation continues to ease.
Meanwhile, EUR/USD edged lower to 1.1736, although the euro remained on course for a weekly gain of 0.8%, marking its third consecutive weekly advance.
German inflation rose to 2.6% in November, confirming earlier estimates, while harmonised consumer prices stood at 2.3% year-on-year in October.
ING analysts said market focus will now shift to the European Central Bank meeting next Thursday, where President Christine Lagarde is expected to present updated economic forecasts that will test current expectations of no further rate cuts.
Asian markets watch central banks
In Asia, USD/JPY rose 0.1% to 155.73, with the yen slightly weaker ahead of next week’s Bank of Japan meeting, where markets largely expect a rate hike.
Investors are closely watching for guidance on the future path of Japanese interest rates, particularly beyond 2025.
Elsewhere, USD/CNY dipped 0.1% to 7.0556, while AUD/USD climbed 0.1% to 0.6673, positioning the Australian dollar for a weekly gain of 0.5%. Persistent inflation pressures have increased expectations that the Reserve Bank of Australia could raise rates in the near term.
