Investing.com – The US dollar fell slightly on Friday, pausing for a breath after strong gains this week, as traders await the release of the Fed’s favorite inflation gauge.
At 04:40 ET (09:40 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.2% lower at 107.960, after rising to a high in two years.
Dollar on track for weekly gains
Yields fell slightly on Friday but are still on track for a weekly rise of around 1%, supported by a relatively aggressive US rate outlook following the Federal Reserve’s final policy meeting of the year earlier this week.
US central bank policymakers now only project an additional 50 basis points of easing in 2025, a likely two cuts of 25 basis points, rather than the four cuts indicated in the previous September forecasts.
November is expected to rise 2.9% year-on-year, compared to 2.8% the previous month, while the monthly figure will rise 0.2%, down from October’s 0.3%.
A stronger-than-expected rise in the core PCE index could have an outsized impact on markets, as the hawkish nature of the Fed’s comments has shifted the likelihood to fewer or possibly no further cuts next year.
“Market prices moved aggressively towards our view of only one further cut of 25 basis points as outlined in our team’s 2025 outlook,” Macquarie analysts said in a note.
Sterling near one-month low after weak retail sales
In Europe, yields traded largely flat at 1.2500, having fallen to a one-month low on Thursday after Bank of England policymakers voted 6-3 on Thursday to leave rates unchanged. This is more divisive than expected amid concerns about a slowing economy.
Data released earlier Friday showed Brits rose a weaker-than-expected 0.2% in November, below the expected 0.5% increase.
rose 0.2% higher to 1.0385, just off a one-month low, and still on track for a weekly decline of more than 1% on the strength of the dollar.
rose unexpectedly in November, rising 0.1% year-on-year, instead of the forecast 0.3% decline, while the German retail business climate index fell slightly, the Ifo Institute said on Friday.
This year has been a major challenge for the retail sector and the overall economic environment is likely to remain difficult in 2025, “although many retailers are hoping for an improvement in consumer confidence,” says Ifo expert Patrick Hoeppner.
The country cut its key interest rate for the fourth time this year last week and is likely to cut rates further in 2025 as inflation concerns subside.
Yen helped by CPI data
In Asia, interest rates fell by 0.4% to 156.74, which was slightly stronger than expected for November, strengthening the arguments for a possible interest rate increase by the economy.
But the yen tumbled to its weakest level in five months on Thursday after comments from Governor Kazuo Ueda suggested a rise would come later than earlier in 2025.
rose 0.1% to 7.3050, reaching the highest level since November 2023.
The People’s Bank of China left its benchmark unchanged on Friday, as was widely expected, with the central bank having limited room to cut rates further amid ongoing yuan weakness.
