BY COMFORT OGBONNA
The U.S. dollar weakened slightly on Friday but continued to trade within familiar territory against major global currencies as financial markets turned their attention to next week’s highly anticipated Federal Reserve meeting. Policymakers are widely expected to deliver an interest-rate cut, and traders are positioning cautiously ahead of the announcement.
The dollar index, which tracks the greenback’s performance against six major peers, dipped 0.1% to 98.994. Despite the decline, the index remained close to Thursday’s five-week low of 98.765. For the week, it recorded a 0.5% drop, reflecting growing expectations of easier monetary policy.
The euro held steady at $1.16433, lingering near Thursday’s three-week high of $1.1681 as investors awaited further clues from central bank officials.
Market pricing continues to point overwhelmingly toward action from the Fed, with traders assigning nearly a 90% probability of a rate cut next week and anticipating the possibility of two additional cuts over the next year. Analysts say recent soft labor market readings from nontraditional data sources have strengthened the case for easing, reinforcing market conviction.
Antonio Ruggiero, FX and macro strategist at Convera, noted that weaker labor indicators “helped crystallize what still appears to be an overdone 90% probability of a cut next week,” emphasizing that the dollar looks increasingly overvalued compared to its major counterparts.
Major financial institutions have shifted their expectations as well. Morgan Stanley announced on Friday that it now sees a quarter-point rate cut in December, aligning with forecasts from JPMorgan and BofA Global Research after receiving dovish signals from Federal Reserve officials. All three previously anticipated no change at the upcoming meeting.
Fresh data offered little support to the U.S. currency. Consumer sentiment improved in early December, but the modest uptick failed to sway currency markets. Meanwhile, a delayed report from the Bureau of Economic Analysis showed the Personal Consumption Expenditures (PCE) Price Index rose 0.3% in September, matching August’s increase. Core PCE, which excludes food and energy, also gained 0.2% for the second consecutive month—an indication that inflation is cooling but still steady.
Investors are also assessing potential leadership changes at the Federal Reserve. White House economic adviser Kevin Hassett is being discussed as a possible successor to Jerome Powell when his term expires in May. Market participants believe Hassett would likely support deeper rate cuts, a prospect contributing to the dollar’s subdued tone.
Chris Turner, global head of markets at ING, said the dollar “remains slightly offered on the view that the Fed will cut rates next week and that the arrival of Kevin Hassett as Fed Chair will somehow make the Fed more dovish.”
In Asia, the Japanese yen continued its recent strengthening trend, gaining 0.1% to reach 155.295 per dollar. The currency has been bolstered by growing expectations that the Bank of Japan (BOJ) may raise interest rates later this month. Reports indicate BOJ officials are prepared to act at their December 19 meeting as long as no major economic shocks occur. Analysts say a rate hike would trigger unwinding of carry trades, lending additional support to the yen.
The British pound traded flat at $1.3329, maintaining proximity to Thursday’s six-week high of $1.3385 as traders looked ahead to a crowded calendar of central bank decisions. Next week will bring rate announcements from the Reserve Bank of Australia on Tuesday, the Bank of Canada on Wednesday, and the Swiss National Bank on Thursday, alongside the Fed’s own decision. The following week features additional policy updates from the BOJ, European Central Bank, Bank of England, and Sweden’s Riksbank.
In digital asset markets, bitcoin extended its decline for a second straight session, falling 3% to $89,701 as risk sentiment softened and traders weighed global monetary policy uncertainty.
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