The US dollar index retreated on Friday, trading near its lowest level in five weeks ahead of a delayed US inflation reading that is not expected to alter market expectations for a Federal Reserve rate cut next week.
The dollar weakened notably against the Japanese yen, which drew support from expectations that the Bank of Japan will raise interest rates this month, pushing the yen to its strongest level in nearly three weeks.
The dollar index, which measures the currency against six major peers, slipped 0.1% to 98.981, moving toward Thursday’s low of 98.765.
The Personal Consumption Expenditures (PCE) index — one of the Fed’s preferred inflation gauges — is set for release later on Friday, though it reflects September data. Analysts at LSEG expect a 0.2% rise in the core reading.
The data is unlikely to alter expectations for a 25 basis-point rate cut at the Fed’s December 9–10 FOMC meeting, with market focus instead turning to any guidance on the broader easing cycle.
LSEG data shows traders pricing an 86% chance of a rate cut next week, with the potential for two additional cuts next year.
Investors are also assessing the possibility that Kevin Hassett, the White House economic adviser, could succeed Jerome Powell as Fed chair when Powell’s term ends in May. Hassett is expected to advocate deeper rate cuts.
Chris Turner, head of global markets at ING, said: “The dollar continues to trade without strong buying pressure as markets look toward next week’s rate cut, and as expectations grow that a Hassett-led Fed could lean more dovish.”
The US labor market remains central to investor attention, given its implications for how much support the Fed may deem necessary for the economy.
Data released Thursday night showed new unemployment claims falling to their lowest level in more than three years, though the numbers may have been distorted by the Thanksgiving holiday.
The broader economic picture remains incomplete following the prolonged government shutdown, which delayed some reports and prevented the collection of others.
The monthly US jobs report was originally scheduled for release this Friday, but has been postponed until mid-December, and last month’s figures were never published.
Yen rises as Bank of Japan prepares for a potential rate hike
In currency markets, the dollar dipped 0.12% to ¥154.92 after touching its lowest level since November 17.
Bloomberg reported Friday that Bank of Japan officials are prepared to raise rates on December 19 if no major economic shocks occur, following a Reuters report earlier in the week suggesting a December hike is likely.
The euro climbed 0.1% to $1.1651, heading toward Thursday’s three-week high of $1.1682.
The British pound rose 0.15% to $1.3346, nearing the six-week peak of $1.3385 reached in the previous session.
Next week brings a cluster of central bank meetings: the Reserve Bank of Australia on Tuesday, the Bank of Canada on Wednesday, and the Swiss National Bank on Thursday. These will be followed the week after by meetings of the Bank of Japan, European Central Bank, Bank of England, and Sweden’s Riksbank.
The Australian dollar gained 0.3% to $0.6626 after touching its highest level in more than two months.
The Swiss franc edged up 0.1% to 0.8029 per dollar after sharply retreating in the previous session from a two-week high of 0.7992.
