The U.S. dollar held steady on Thursday but continues to trade weak after a series of soft economic reports strengthened expectations of an interest rate cut from the Federal Reserve next week.
As of 04:50 ET (09:50 GMT), the Dollar Index — which measures the greenback against six major currencies — was largely unchanged at 98.805. The index is sitting near a five-week low and is down almost 9% so far this year.
Fed meeting in sharp focus
Recent economic data in the United States has increased market confidence that the Fed will cut rates. This outlook has put consistent pressure on the dollar.
ING analysts noted that the 32,000 decline in ADP payrolls “makes a Fed cut next week look even closer to a certainty.” They added that the OIS curve is pricing in a 25-basis-point cut, meaning the Fed could trigger a sharp adverse reaction in risk assets if it chooses to hold rates instead.
However, markets are only pricing in an additional 15 basis points of easing by March, suggesting expectations for December remain aligned with a “hawkish cut.” ING added that they expect economic data to justify two more cuts early next year, reinforcing their view that the dollar is unlikely to stage a recovery even during the typically strong first quarter.
The currency has also been pressured by U.S. President Donald Trump’s announcement that he will reveal his pick to replace Jerome Powell as Fed chair early next year. The extended search has created uncertainty. Reports have suggested that naming White House economic adviser Kevin Hassett could further weaken the dollar. Bond investors have warned the U.S. Treasury that Hassett may push for aggressive rate cuts to align with Trump’s preferences, according to the Financial Times.
Euro climbs toward seven-week highs
In Europe, EUR/USD rose 0.1% to 1.1677 after touching its highest level in nearly seven weeks. The pair is tracking close to annual gains of almost 13%, which would mark its strongest year since 2017.
ING reiterated its target of 1.170 for next week’s Fed meeting and 1.180 for the end of the year. The bank said seasonality may provide support and noted that its fair-value model shows the euro remains about 1.1% undervalued.
The European Central Bank meets in two weeks and is widely expected to keep rates unchanged after cutting by a combined 2 percentage points into June before pausing.
The British pound weakened, with GBP/USD falling 0.1% to 1.3340. The drop came after data showed the U.K. construction sector contracted last month at its fastest rate since May 2020. S&P Global’s construction PMI declined to 39.4 in November from 44.1 in October, extending the longest downturn since the global financial crisis and remaining well below the 50 mark that signals expansion.
Yen firms as Aussie dollar extends gains
In Asia, USD/JPY slipped 0.2% to 154.96, with the Japanese yen strengthening as traders continue to respond to the U.S. data reinforcing the chances of a Fed rate cut.
USD/CNY traded 0.1% higher at 7.0691, while AUD/USD rose 0.3% to 0.6615 as the Australian economy showed further signs of resilience.
