The US dollar languished not far from a five-week low against its major peers on Friday (Dec 5) as investors braced for a Federal Reserve rate cut next week.
Markets widely expect a quarter point reduction when the policy-setting Federal Open Market Committee meets on Dec 9 to 10, and a focus will be on any signals about how much additional easing lies ahead.
The dollar index, which measures the currency against six rivals, was flat at 99.065 early in Asia. A small gain overnight snapped a nine-day losing streak, but the index had dipped to a five-week low of 98.765 earlier that session, and it remains on course for a 0.4 per cent decline this week.
Traders are pricing around 86 per cent odds of Fed cut next Wednesday, and potentially 2-3 more reductions next year, LSEG data showed.
Fed officials have been carefully watching the labour market to determine whether the economy needs further support.
Labour market data readings have been mixed.
The US private sector shed 32,000 jobs in November, payroll firm ADP said on Wednesday, marking an unexpected decline that is likely to reinforce expectations of an interest rate cut next week.
Although some analysts view the figures as unreliable, they remain closely watched as a gauge of the US economy.
Data overnight showed the number of Americans filing new applications for unemployment benefits fell to a more than three-year low last week, but may have been skewed by the Thanksgiving holiday.
The data picture remains incomplete following the record-long government shutdown that delayed some releases and prevented other data from ever being collected.
Crucial monthly payrolls figures would ordinarily be published later on Friday, but have been delayed, and the previous month’s numbers were never released.
“I think there’s enough weakness that really sort of justifies that the Fed could be a little bit more concerned about the labour conditions than inflation, and therefore they likely are positioned to do another interest rate cut in December,” said Anthony Raza, head of multi-asset strategy at UOB Asset Management.
Markets are already anticipating this shift, with the current discussion centred on how many additional cuts may follow next year, he told CNA’s Asia First.
Raza added that US markets appear to be moving away from a period of policy-related challenges, including tariffs.
“As we enter 2026, the rate cuts are going to help, and some tax cuts are going to help, and I think it’s a nice switch for the US economy,” he noted.
One of the Fed’s preferred inflation gauges – the PCE deflator – will be published later on Friday, although the data is for September. Economists surveyed by LSEG expect a 0.2 per cent monthly increase in the core number.
“An increase of 0.2 per cent per month or below will encourage the FOMC to cut the Funds rate next week in our view,” Commonwealth Bank of Australia currency strategist Carol Kong wrote in a client note.
“Our analysis suggests the risk is a soft increase in core PCE inflation of only 0.1 per cent.”
The dollar was little changed at 155.18 yen.
The euro was flat at $1.1647 and sterling held steady at $1.3326 after easing back from Wednesday’s six-week peak in the previous session.
The dollar has come under additional pressure in recent days with investors also weighing the prospect of White House economic adviser Kevin Hassett taking over as Fed Chair after Jerome Powell’s term ends in May. Hassett is expected to push for more rate cuts.
Next week sees a parade of central bank policy decisions, with the Reserve Bank of Australia’s coming on Tuesday, the Bank of Canada’s on Wednesday and the Swiss National Bank’s on Thursday.
That continues the following week with the European Central Bank, the Bank of England, Sweden’s Riksbank, and the Bank of Japan setting policy.
Source : https://www.channelnewsasia.com/business/dollar-hovers-near-five-week-low-fed-rate-cut-bets-5558976