Dollar set for best week in a month on cautious Fed outlook
The dollar headed for its best weekly performance in a month on Friday, as investors priced in the possibility of the Federal Reserve cutting rates more slowly next year, while sterling fell after a surprise contraction in UK economic activity.
The U.S. currency held firm against the euro and Swiss franc following rate cuts by those central banks a day earlier, and rose against the yen after reports that the Bank of Japan could forgo a rate hike at its meeting next week.
The dollar index, which measures the currency against six others, was flat at 106.94, but still set for a weekly gain of nearly 1%, its biggest in a month.
U.S. data on Thursday showed the job market is gradually cooling in line with expectations, while producer price inflation helped reinforce the market's current scenario of a Fed cut on Dec. 18, but a slower pace of reductions in 2025.
Markets fully expect a cut at the upcoming meeting, but only price a roughly 24% chance of another one in January, with March the most likely point for another move, according to CME's FedWatch tool.
"What is clear from recent Fed speakers and the data flow is that progress toward the inflation target has slowed down and the economy has continued to perform, therefore policymakers can afford to take a more cautious approach to easing over 2025," said Rodrigo Catril, senior FX strategist at National Australia Bank (OTC:NABZY).
San Francisco Fed President Mary Daly, for example, said this month that she was comfortable cutting rates in December, but advocated "a more thoughtful and cautious approach" on further reductions.(Cay)
source: Investing.com
