The U.S. dollar edged slightly lower on Monday, kicking off a busy week packed with key economic releases that could shape expectations for interest rate policy in the year ahead.
At 04:25 ET (09:25 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, slipped 0.1% to 97.950. This keeps the index close to the nearly two-month low reached last week.
The dollar is now down more than 9% for the year, putting it on track for its sharpest annual decline since 2017.
Dollar stays under pressure
The U.S. currency continues to trade weakly following last week’s Federal Reserve interest rate cut and the central bank’s projection of another reduction in 2026. Policymakers remain divided, citing the need for more economic data before committing to further moves.
Against this backdrop, traders are closely watching several high-impact data releases, along with speeches from senior Federal Reserve officials, for clues on the likely direction of interest rates next year.
“The main focus is tomorrow’s November nonfarm payrolls report,” analysts at ING said in a note. “Markets expect a soft reading of around +50,000 jobs, with the unemployment rate ticking up to 4.5%. Any downside surprise could accelerate expectations for the next Fed rate cut.”
ING also highlighted upcoming remarks from key policymakers, including New York Fed President John Williams. “Williams played a key role in pushing market expectations in a dovish direction ahead of last week’s rate cut,” the bank noted.
Markets are also monitoring developments around the appointment of the next Federal Reserve chair, as current Fed Chair Jerome Powell’s term is set to expire in May.
U.S. President Donald Trump said on Friday that he is considering either former Fed Governor Kevin Warsh or National Economic Council Director Kevin Hassett to lead the central bank next year.
Euro on track for strong annual gains
In Europe, EUR/USD traded largely unchanged at 1.1740. Despite the flat session, the euro remains on course to post annual gains of more than 13%.
Eurozone industrial production data is due later in the day, although it is unlikely to significantly influence the European Central Bank’s policy decision on Thursday.
The ECB is widely expected to keep its key interest rate at 2% for a fourth consecutive meeting. Investors will be watching closely for any signals that a rate hike could be considered in 2026, following recent data showing stronger-than-expected economic growth.
“Levels around 1.1750–1.1760 are now important short-term resistance for EUR/USD,” ING said. “Both the U.S. jobs report and the ECB meeting will likely determine whether the pair can reach our preferred target of 1.1800 by the end of the week.”
Pound rises ahead of BoE decision
GBP/USD rose 0.1% to 1.3380 at the start of a week filled with major UK data releases and a Bank of England policy meeting.
“Ahead of Thursday’s expected BoE rate cut, investors will see labor market data and November inflation figures,” ING said. “Headline CPI should ease slightly, while core and services inflation are expected to remain relatively firm at 3.4% and 4.5% year-on-year.”
The Bank of England’s decision remains finely balanced after a narrow 5-4 vote to keep rates unchanged at the previous meeting. However, Governor Andrew Bailey is expected to shift his stance, tipping the balance toward a rate cut to 3.75% from 4.0%.
Yen strengthens as BOJ rate hike expectations grow
In Asia, USD/JPY fell 0.4% to 155.16, with the yen outperforming regional peers after a business survey showed improving corporate sentiment.
The data reinforced expectations that the Bank of Japan could raise interest rates at its policy meeting later this week, supported by signs of stronger wage growth and easing deflationary pressures.
Investors will also pay close attention to guidance from BOJ Governor Kazuo Ueda for insight into the pace and scope of future policy normalization.
USD/CNY slipped 0.1% to 7.0499 after fresh data showed China’s economic recovery remained uneven in November.
Industrial production growth slowed to 4.8% year-on-year, while retail sales rose just 1.3%, well below expectations and highlighting continued weakness in consumer demand.
Elsewhere, AUD/USD dipped 0.1% to 0.6650, while NZD/USD declined 0.4% to 0.5781.
