Dollar headed for weekly gains on Fed’s slow rate cuts, inflation outlook By Reuters
Written by Rae Wee
SINGAPORE (Reuters) – The dollar was set for its best week in more than a month on Friday, boosted by Federal Reserve rate cuts and the view that Donald Trump’s policies could push inflation higher when he takes office in January.
The greenback is hovering around a one-year high against a basket of currencies at 106.81 and is looking for a weekly gain of 1.76%, which would mark its best performance since September.
Sterling is also on track for its steepest weekly fall since January 2023 of around 2%. It last ticked up 0.06% to $1.2676.
The euro last traded at $1.0541, losing near one-year strength in the past. It is headed for a weekly decline of 1.67%, the worst in more than a month.
Fed Chairman Jerome Powell said Thursday the central bank does not need to rush to cut interest rates, citing continued economic growth, a strong job market and sticky inflation as reasons to caution against easing policy too quickly.
Traders responded by betting on the pace and scale of US rate cuts in the future, and Fed funds futures now mean that only 71 basis points will be cut by the end of 2025.
The price for a 25 bp cut next month also fell to 48.3% from 82.5% the previous day, according to the CME FedWatch tool.
“Markets just took (Powell’s) comments at face value and therefore lowered expectations for the pace of FOMC cuts,” said Carol Kong, currency strategist at Commonwealth Bank of Australia (OTC:) (CBA).
“Markets will focus on the hope of President Trump’s policy platform, so in the near term, we could see more gains in the US dollar.”
Higher trade tariffs and tighter immigration under the incoming administration of President Trump are expected to cause inflation, which could slow down the Fed’s tapering cycle for a long time.
Expectations of deeper deficit spending are also raising US Treasury yields, providing the dollar with additional support. [US/]
Against the resurgent dollar, the yen has once again come under the spotlight, as it continues to weaken deeply in the area that prompted the intervention of the Japanese authorities in the past.
The yen ended 0.1% lower at 156.39 per dollar, on track for a weekly decline of 2.4%.
The Japanese currency has fallen about 11% since its peak in September and weakened past the 156 dollar level for the first time since July in the previous session.
“Speed is always more important than rate. Since the yen has already weakened 11% against the dollar in the past two months, I think we are approaching a real intervention,” said CBA’s Kong.
The Bank of Japan (BOJ) said on Friday that Governor Kazuo Ueda will deliver a speech and hold a news conference on Monday, in an event that will be closely watched by markets for views on whether the BOJ may raise interest rates next month.
Elsewhere, the Australian dollar rose 0.12% to $0.6462 and was down 1.85% on the week, its worst weekly performance in four months.
The New Zealand dollar was similarly looking for a weekly decline of 1.8%. It last gained 0.19% to $0.5860, struggling for almost a year.
The two Antipodean currencies, which are often used as liquid proxies for the yuan, did not react to a slew of economic data that showed China’s factory output growth slowed in October and it was too early to change the crisis-hit construction sector. , although the buyers failed.
It retreated against the dollar and last stood at 7.2234, following its seventh straight weekly decline – its longest loss since 2021.
In cryptocurrencies, bitcoin is back below the $90,000 level as some investors are taking profits after a spectacular run.
The world’s largest cryptocurrency has grown by almost 30 percent in the past two weeks on the idea that friendly US regulation was imminent under the Trump administration and could bring new developments to all corners of the asset class.
Still, some remain wary of bitcoin’s endless rally and the risks involved in its volatility.
“There are several factors of changing risks. With crypto all the time, both FOMO and risks are also at a high level,” said Joshua Chu, co-chairman of the Hong Kong Web3 Association.
“This aspect of the traditional law of profit taking means that non-institutional investors chasing the FOMO rally will be at greater risk.”
