The dollar index, which tracks the currency against six major peers, was steady at 99.065 early in Asian trading. A modest gain overnight ended a nine-day losing streak, but the index had earlier touched 98.765, its lowest level in five weeks, and is on track for a 0.4% decline for the week.
Traders currently assign around 86% probability to a Fed cut next Wednesday, with expectations of 2-3 additional reductions next year, according to LSEG data. Fed officials have been closely monitoring the labor market to determine the need for further stimulus.
Labor Market and Inflation Signals
Recent data showed the number of Americans filing new unemployment claims fell to a more than three-year low last week. However, analysts noted that the figures may have been distorted by the Thanksgiving holiday. The economic picture remains incomplete following the record-long government shutdown, which delayed or prevented the release of several key indicators, including monthly payrolls data.
One of the Fed’s preferred inflation gauges, the core Personal Consumption Expenditures (PCE) deflator, is set for release later on Friday, though the data covers September. Economists surveyed by LSEG expect a 0.2% monthly increase in the core PCE.
“An increase of 0.2% per month or below will encourage the FOMC to cut the Funds rate next week in our view,” said Commonwealth Bank of Australia currency strategist Carol Kong. “Our analysis suggests the risk is a soft increase in core PCE inflation of only 0.1%.”
Currency Movements
The dollar was largely unchanged at 155.18 yen, while the euro held steady at $1.1647 and sterling at $1.3326, after easing from recent multi-week highs.
The dollar has also faced pressure from speculation over White House economic adviser Kevin Hassett potentially succeeding Jerome Powell as Fed Chair in May, with expectations that Hassett may favor additional rate cuts.
Investors are also watching a busy week of global central bank decisions. The Reserve Bank of Australia is scheduled for Tuesday, the Bank of Canada on Wednesday, and the Swiss National Bank on Thursday. The following week will see policy updates from the European Central Bank, Bank of England, Sweden’s Riksbank, and Bank of Japan.
Three government sources told Reuters that the Bank of Japan is likely to raise rates this month, though future moves remain uncertain, with markets pricing in one more hike next year and about a 50% chance of another.
Other major currencies were relatively stable: the Australian dollar at $0.6609 after a two-month high on Thursday, the Canadian dollar at C$1.3961 per U.S. dollar, and the Swiss franc steady at 0.8035 per dollar after retreating from Wednesday’s two-week peak.