Investing.com – The US dollar rose on Friday, heading for its best week in a month, as traders scaled back expectations for aggressive US policy easing next year, while weak growth data weighed on the pound.
At 05:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% higher at 106.780, on track for a weekly gain of around 1%, after having previously risen to a high of more than 2 weeks.
Dollars in demand
This followed the release of a stronger-than-expected US figure, adding to concerns that prices would remain persistent in the new year as incoming President Donald Trump threatens trade and tax policies that could prove inflationary .
The idea of a more cautious approach to Fed easing over the course of 2025 is in stark contrast to the likely moves by the US central bank’s main rivals following a series of rate cuts in recent days, with outsized moves of 50 basis points in Switzerland and Canada and an easing of 25 basis points. by the European Central Bank.
“Despite seasonal trends for a weaker dollar, the dollar is holding onto gains quite well,” ING analysts said in a note. “This is because anticipation of Trump’s policy agenda is keeping dollar spreads wide and trading partner currencies under pressure. It is difficult to see this state of affairs changing before Trump’s inauguration in January.”
Sterling falls after GDP disappointment
In Europe, yields rose 0.1% to 1.0473, following a sharp decline in the wake of Thursday’s policy-setting meeting by the European Central Bank.
Rates were cut by 25 basis points as expected, but regional economic weakness suggests that further rate cuts are likely in the new year, as confirmed by Francois Villeroy de Galhau, policymaker and director of the Bank of France.
“Next year there will be even more interest rate cuts,” Villeroy told business radio BFM.
“There has been no commitment in advance on an interest rate trajectory… I would note that collectively we are quite comfortable with the financial markets’ interest rate forecasts for next year,” he added.
“The direction of movement is lower for eurozone interest rates and rates will not necessarily stop at neutral (2.00/0.2.25%),” ING added.
traded 0.3% lower at 1.2633 after data showed the UK economy contracted again in October, with economic activity in the world’s sixth-largest economy remaining very subdued.
The economy shrank by 0.1% in October, similar to the previous month, resulting in an annual growth rate of 1.3%.
This was a lot weaker than expected, as the October GDP figures were expected to have risen by 0.1% in October, an annual increase of 1.6%.
BOJ meeting in focus
In Asia, yields rose 0.3% to 7.2878, hovering near a two-year high, after the two-day China Central Economic Work Conference concluded on Thursday, leaving markets disappointed by the lack of aggressive stimulus.
rose 0.6% to 153.50, following media reports indicating rates were likely to remain unchanged next week, contrary to previous expectations of a rate hike.
