By Hannah Lang
NEW YORK (Reuters) – The dollar headed for its best weekly performance in a month on Friday as investors priced in the possibility that the Federal Reserve would cut interest rates more slowly next year, while sterling fell following a surprise contraction in the British economic activity.
The US currency also rose against the yen on reports that the Bank of Japan could abandon a rate hike at its meeting next week.
The , which compares the coin to six others, rose 0.037% to 107, marking a weekly gain of almost 1%, the biggest in a month.
U.S. data showed Thursday that the labor market is gradually cooling, in line with expectations, while producer price inflation has helped reinforce the current market scenario of a Fed cut on Dec. 18 but a slower pace of cuts in 2025.
Markets fully expect a cut at the upcoming meeting, but only estimate a roughly 24% chance of another cut in January, with March the most likely time for another move, according to CME’s FedWatch tool.
“I think there will probably be a long pause, perhaps for the entire first quarter of the year, from the Fed and then maybe an incremental rate cut here and there as the central bank tries to fine-tune policy,” Matt Weller said. , head of market research at StoneX.
For example, San Francisco Fed President Mary Daly said this month that she had no problem cutting rates in December but called for “a more thoughtful and cautious approach” to further cuts.
The dollar rose 0.69% to 153.695 yen, the highest level since late November. The yen was the worst performer against the dollar this week, which is up 2% against the Japanese currency.
Traders see only a 23% chance of a quarter-point rise by the BOJ on December 19, after reports from Reuters and Bloomberg suggested officials were holding off on tightening this time around, waiting for more evidence of wage growth and seeing how American policy would turn out. is taking shape under incoming President Donald Trump.
“While the outcome is uncertain, one thing is clear: a rise of more than 15 basis points would likely trigger a downward move in the dollar/yen as the yen strengthens,” said City Index market analyst David Scutt.
“On the other hand, if the BoJ leaves rates unchanged, there is a real chance of a sudden upward reaction.”
EUROPE UNDER PRESSURE
In Europe, the pound fell after data showed the British economy shrank unexpectedly in October, adding to signs of a bigger-than-expected slowdown. The Office for National Statistics said the economy shrank 0.1% in October, compared with forecasts in a Reuters poll for growth of 0.1%.
Sterling was last seen down 0.45% at $1.2616, around its weakest level since the start of the month.
The euro pared earlier losses against the dollar, rising 0.26% to $1.04945. The European Central Bank cut interest rates by 25 basis points on Thursday and left the door open for further easing.
The Swiss franc remained under pressure following the central bank’s shock rate cut the day before. The Swiss franc was last virtually flat at 0.89265 francs.
Interest rate cuts and the threat of US tariffs have left the Canadian dollar at a 4.5-year low. [CAD/]
In the offshore market it was held at 7.281 per dollar. Reuters reported this week that China is considering allowing its currency to fall further to counter the effects of a possible US trade war.
