The US dollar headed on Friday toward its worst weekly performance since late July, as traders intensified their bets on further monetary easing by the Federal Reserve next month, while liquidity remained thin due to the Thanksgiving holiday in the United States.
The dollar index — which measures the US currency against a basket of six major peers — was last up 0.1% at 99.624, recovering part of its losses after a five-day decline pushed it to its worst weekly drop since July 21.
Fed funds futures were pricing in an implied 87% probability of a 25-basis-point rate cut at the December 10 policy meeting, compared with 39% a week earlier, according to CME’s FedWatch tool.
The yield on the US 10-year Treasury was up 0.8 basis point at 4.0037%, after a rebound that followed five straight days of declines which had pushed the yield to briefly slip below 4% twice.
The Japanese yen swings as data support tightening
In Asia, the Japanese yen fluctuated between gains and losses after a period of weakness, and was last down 0.1% at 156.385 per dollar, as labor-market and inflation data supported expectations that Japan is moving toward policy tightening, despite the currency’s continued weakness that has increased the likelihood of intervention by the Ministry of Finance.
The yen had briefly strengthened after data showed Tokyo consumer prices rising 2.8% in November, beating economists’ expectations and exceeding the Bank of Japan’s 2% target.
“With the labor market remaining tight and core inflation (excluding fresh food and energy) still above 3% for now, the Bank of Japan will resume its tightening cycle in the coming months. The bottom line is that the case for policy tightening remains intact,” Capital Economics analysts said in a research note.
The yen is on track for a third month of losses, at a time when the government of Prime Minister Sanae Takaichi is rolling out a 21.3 trillion-yen ($135.4 billion) stimulus package, while the BOJ continues to hold off on raising interest rates despite inflation exceeding its target.
The euro and sterling hold steady… and attention turns to efforts to end the Ukraine war
The euro held at $1.1600 with little change during Asian trading, after Ukrainian President Volodymyr Zelensky said Thursday that delegations from Ukraine and the United States will meet this week to discuss a formula agreed during the Geneva talks to end the war with Russia and secure safety guarantees for Kyiv.
Sterling dipped 0.1% to $1.323 but was headed for its best weekly performance since early August, after UK Finance Minister Rachel Reeves unveiled plans on Wednesday to raise taxes by £26 billion ($34 billion).
Reeves on Thursday responded to criticism of the spending plans, which would finance additional social-welfare allowances by lifting the tax burden to its highest level since World War II.
Commodity currencies: the Australian dollar, the yuan, and the kiwi
The Australian dollar was trading at $0.6536, up 0.1% in early dealings, after data showed private-sector credit rising 0.7% in October from the previous month, a slight acceleration from the prior reading.
The offshore yuan held at 7.074 per dollar and is on track for its best monthly performance since August.
The New Zealand dollar — the “kiwi” — traded at $0.5725, down 0.1%, after ending its strongest week since late April.
