The US dollar held steady on Wednesday near its lowest levels since early October, after data showed the labor market remains weak, keeping investors cautious about the timing of the Federal Reserve’s next interest-rate cut.
The euro traded at $1.1751 in Asian hours, hovering near a 12-week high reached in the previous session, ahead of the European Central Bank’s policy decision on Thursday, where the bank is expected to keep interest rates unchanged.
The dollar index, which tracks the US currency against six major peers, stood at 98.193, remaining close to its lowest level since October 3, recorded on Tuesday. The index is down 9.5% so far this year and is on track for its biggest annual decline since 2017.
Although the US economy added 64,000 jobs in November, beating economists’ expectations in a Reuters poll, the unemployment rate rose to 4.6% last month. The data were distorted by the effects of a 43-day government shutdown.
Still, investors and analysts were unconvinced that the jobs report materially altered the outlook for monetary policy, as markets now await inflation data due on Thursday.
Tony Sycamore, market analyst at IG, said: “Taken together, the data paint a picture of very weak jobs growth. While it’s not weak enough to put a January rate cut back on the table, the continued rise in unemployment keeps the door open to a potential cut at the March FOMC meeting, if upcoming employment reports show further deterioration.”
The Federal Reserve cut interest rates as expected last week but signaled that borrowing costs are unlikely to fall again in the near term, projecting only one rate cut in 2026. Markets, however, are currently pricing in two cuts next year, even as futures pricing suggests a January cut remains unlikely.
Thomas Matthews, head of Asia-Pacific markets at Capital Economics, said: “If CPI data come in as expected later this week, the Fed won’t feel any pressure to ease policy in the next few meetings. Even March may be a little too early to expect a rate cut.”
Central Bank Meetings in Focus
Central banks are set to close out the year with a series of key policy decisions in the coming days. Alongside the ECB, the Bank of England is expected to cut interest rates on Thursday in a close vote, while the Bank of Japan is widely expected to raise rates on Friday to their highest level in three decades.
The British pound was steady at $1.3424, slightly below a two-month high hit on Tuesday, after data showed UK unemployment rose to its highest level since early 2021, while private-sector wage growth slowed to its weakest pace in nearly five years. The figures, released ahead of Chancellor Rachel Reeves’ annual budget last month, reinforced expectations of a rate cut.
Meanwhile, the Japanese yen edged slightly higher to 154.56 per dollar, nearing a two-week high ahead of the Bank of Japan’s meeting. With a rate hike widely expected, markets will focus on forward guidance and the policy path for next year.
Thierry Wizman, global foreign exchange and rates strategist at Macquarie, said the Bank of Japan’s move reflects inflationary pressures linked to a weaker yen, as well as renewed political willingness to address what he described as Japan’s “cost-of-living crisis.”
He added: “We are more constructive on the Japanese yen than on the British pound, and we expect USD/JPY to move toward 146 by the end of 2026. We also see GBP/USD remaining close to the 1.33–1.34 range throughout 2026.”
