The U.S. dollar weakened on Thursday after softer economic data strengthened expectations for a Federal Reserve rate cut next week. The decline offered relief to the yen and pushed the euro to its highest level in almost seven weeks.
Investors are also assessing the possibility that White House economic adviser Kevin Hassett could replace Jerome Powell as Fed Chair when Powell’s term ends in May. Hassett is widely expected to support deeper rate cuts.
President Donald Trump said this week that he will announce his pick to succeed Powell early next year. This extends a long selection process, despite earlier claims that a decision had already been made.
Analysts warn that appointing Hassett may weigh on the dollar. According to the Financial Times, bond investors have told the U.S. Treasury they fear Hassett could push for aggressive rate cuts in line with Trump’s preferences.
Markets now price in an 89% chance of a quarter-point rate cut next week, CME FedWatch data shows. Traders also expect nearly 90 basis points of easing by the end of next year. But some analysts doubt the Fed will deliver such a deep cycle.
Thomas Mathews, head of markets for Asia-Pacific at Capital Economics, said investors may be overestimating how far the Fed will cut, given the underlying strength of the U.S. economy. He expects this to limit how much the dollar can fall.
Even so, the dollar index sat at 98.919, near a five-week low. The index is down almost 9% for the year.
Thierry Wizman, global FX and rates strategist at Macquarie, said improved economic data abroad, stronger wage signals in Japan, and speculation about Hassett becoming the next Fed Chair have all contributed to the dollar’s recent slide.
The euro held steady at $1.1674 during Asian trading. The currency reached its highest level since October 17 in the prior session, supported by data showing eurozone business activity expanding at the fastest pace in 30 months. The euro is up more than 12% this year, its strongest annual performance since 2017, helped by a weak dollar and rising expectations of Fed rate cuts.
The European Central Bank meets in two weeks and is expected to leave rates unchanged. Markets currently price only a one-in-four chance of any easing next year.
The yen traded at 155.18 per dollar, little changed, as concerns over potential intervention from Japanese authorities eased. Japanese bond yields climbed this week on fiscal concerns linked to Prime Minister Sanae Takaichi’s large spending plans.
Markets now anticipate a BOJ rate hike in two weeks, after signals from BOJ Governor Kazuo Ueda helped ease pressure on the yen.
Sterling traded at $1.33425, close to its highest level since October 28. The Australian dollar was at $0.66075, and the New Zealand dollar at $0.5774 — both near their strongest levels in more than a month.
