The U.S. dollar maintained its stability against the euro and Swiss franc after the respective central banks implemented rate cuts the previous day, while appreciating against the yen on reports suggesting the Bank of Japan may refrain from raising rates at its upcoming meeting.
The dollar index, a composite measure against six major currencies, rose 0.1% to 107.11, setting the stage for a 1.1% weekly increase—its most significant gain in a month.
Recent U.S. data indicated a gradual cooling in the job market, aligning with expectations, while producer price inflation supported the prevailing market outlook for a Fed rate cut on December 18, albeit at a slower pace in 2025.
Market participants are fully anticipating a cut at the next meeting, but only assign about a 24% probability to another cut in January, with March being viewed as the most likely timeframe for any further adjustments, according to CME's FedWatch tool.
Rodrigo Catril, senior FX strategist at National Australia Bank, noted, "Recent comments from Fed officials and the flow of data indicate that progress toward the inflation target has slowed, while the economy continues to perform well, allowing policymakers to adopt a more cautious stance on easing throughout 2025."
San Francisco Fed President Mary Daly expressed this month that she is open to a rate cut in December but emphasized the need for "a more thoughtful and cautious approach" regarding subsequent reductions.
The dollar climbed 0.3% to 153.09 yen, reaching its highest level since late November. The yen has been the weakest performer this week against the dollar, which has appreciated by 2% relative to the Japanese currency.
Traders currently perceive only a 23% likelihood of a quarter-point interest rate increase by the Bank of Japan (BOJ) on December 19. This follows reports from Reuters and Bloomberg indicating that officials may opt to delay tightening measures in order to gather more evidence of wage growth and assess the direction of U.S. policy under the incoming administration of President Donald Trump.
David Scutt, a market analyst at City Index, noted that while the outcome remains uncertain, a rate hike exceeding 15 basis points could lead to a decline in the dollar/yen exchange rate as the yen appreciates. Conversely, if the BOJ decides to maintain current rates, there is a strong possibility of an immediate upward reaction.
Regardless of the decision, the outlook for this currency pair remains volatile and is likely to be influenced by movements in the dollar, he added.
EUROPE FACES CHALLENGES
In Europe, the British pound experienced a decline following data that revealed an unexpected contraction in the UK economy for October, indicating a more significant slowdown than anticipated. The Office for National Statistics reported a 0.1% contraction, contrasting with a Reuters poll that had forecasted a 0.1% growth.
As a result, sterling fell by 0.36% to $1.2630, marking its lowest point since the beginning of the month. Against the euro, the pound decreased by 0.25% to 82.80 pence, remaining close to its highest level since June 2016, when the UK voted to exit the European Union.
The euro also weakened against the dollar, dropping 0.11% to $1.0455, its lowest level since November 26, following the European Central Bank's decision to cut rates by 25 basis points and signal the possibility of further easing.
Furthermore, the Swiss franc experienced downward pressure following the central bank's surprising 50-basis-point rate reduction the preceding day. The dollar appreciated by 0.1% to 0.89355 francs, while the euro remained steady at 0.9341 francs.
Interest rate decreases and the prospect of U.S. tariffs have maintained the Canadian dollar at a 4.5-year low.
The Chinese yuan depreciated to 7.2904 against the dollar in the offshore market. A recent Reuters report suggests China is considering further currency devaluation to mitigate the impact of a potential trade dispute with the United States.
The Australian dollar, frequently utilized as a liquid alternative to the yuan, declined to $0.6365, remaining near its one-year low.
Bitcoin experienced a slight increase, exceeding $100,000 and nearing its all-time high of $103,649 reached on December 5.