Investing.com – The US dollar retreated on Friday, but remained on track for a strong weekly performance, boosted by expectations of outperformance from the US economy and thus fewer Federal Reserve interest rate cuts this year.
At 04:20 ET (09:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.3% lower at 108,900, retreating from a more than two-year high achieved during the previous session.
The dollar remains strong
The index is on track for a weekly gain of about 1%, which would be its best weekly performance in more than a month, as traders continued to factor in a more hawkish Fed and a resilient U.S. economy.
U.S. manufacturing activity data for December, as determined by , came in stronger than expected on Thursday, setting the tone for the Institute for Supply Management’s more widely watched release expected later in the session.
This appears to be cooling slightly to 48.2 last month, compared to a five-month high of 48.4 in November. It was the eighth month in a row that the measure was below the 50-point threshold, although the figure remained above a level of 42.5, which the ISM said signals broader economic expansion.
Markets will also be looking ahead to the key monthly jobs report late next week, with the next Fed meeting taking place at the end of this month.
“Markets fully expect support in January,” ING analysts said in a note. “If the dot plot indeed works as a benchmark for interest rate expectations for the next three months, it raises the bar for a data surprise that seriously threatens the dollar’s large interest rate advantage.”
The euro is rebounding, but is confronted with a sharp decline every week
In Europe, it rose 0.2% to 1.0282, a level that had fallen almost 1% in the previous session to a more than two-year low.
The single currency was helped by a smaller-than-expected rise in the number of unemployed in December, according to data released on Friday.
However, the euro was still on track for a weekly decline of around 1.5%, its worst since November, after data released earlier Thursday showed the euro zone’s decline accelerated at the end of the year.
Traders expected more rate cuts from 2025, with markets pricing in an easing of at least 100 basis points.
was trading 0.2% higher at 1.2406, after falling more than 1% on Thursday, and on course to lose around 1.4% this week.
Interest rates were unchanged last month after consumer prices rose above target, and traders expect roughly 60 basis points of cuts from the Bank of England in 2025.
The yuan falls after the PBOC reported interest rate cuts
In Asia, it rose 0.7% to 7.3523, with the pair rising to its highest level since September 2023.
The Financial Times reported that the PBOC will cut rates further in 2025 as the central bank shifts to a more conventional monetary policy structure under a single benchmark rate.
The monetary policy reform comes as a slew of liquidity measures have largely failed to stimulate China’s economy over the past two years.
traded 0.2% lower at 157.18, after hitting a more than five-month high in late December, thanks to a largely dovish 2025 outlook from the Bank of Japan.
