The US dollar held near a five-week low after weak economic data reinforced expectations that the Federal Reserve will cut interest rates next week, offering some support to the yen while pushing the euro to its strongest level in almost seven weeks.
Investors are also watching the growing possibility that White House economic adviser Kevin Hassett could succeed Jerome Powell as Fed chair when Powell’s term ends in May. Hassett is widely expected to favor further rate cuts.
President Donald Trump said this week he will announce his nominee early next year, extending a selection process that has stretched on for months, even though he previously claimed to have already made a decision.
Analysts warned that appointing Hassett could add pressure on the dollar, amid concerns among bond investors that he may push for aggressive rate cuts aligned with Trump’s preferences, according to the Financial Times.
Data from LSEG shows that traders are pricing in an 85% probability of a quarter-point rate cut next week.
Commerzbank currency strategists Thu Lan Nguyen and Antje Praefcke wrote: “A Fed rate cut next week is already priced in. What will matter for the dollar is whether there are new signals about the future policy path in the meetings that follow.”
The dollar index, which measures the US currency against six major peers, steadied at 98.94 after nine straight days of declines. It remained near a five-week low and is still down about 9% since the start of the year.
A Reuters poll showed a sizable minority of FX strategists expect the dollar to strengthen next year, though most still anticipate weakness in 2026 as rate-cut expectations build.
Thomas Mathews, head of Asia-Pacific markets at Capital Economics, said that given the strength of the US economy, markets may be overestimating how far the Fed will cut rates in the medium term—regardless of next week’s decision. “That could limit the dollar’s downside,” he added.
The euro slipped less than 0.1% to $1.1657 but remained close to the seven-week high touched in the previous session, supported by data showing the fastest expansion in eurozone business activity in 30 months during November.
The currency is up more than 12% this year, on track for its strongest annual gain since 2017, helped by dollar weakness driven earlier by trade tensions and more recently by rising expectations of a Fed rate cut.
The European Central Bank is set to meet in two weeks and is widely expected to leave interest rates unchanged, while markets price only a 25% chance of another cut next year.
The yen held steady at 155.22 per dollar, having recovered slightly from last month’s ten-month low, amid renewed speculation over possible Japanese intervention. Three government sources familiar with internal discussions told Reuters the Bank of Japan may raise rates in December, though the outlook beyond that remains unclear.
Chidu Narayanan, head of Asia-Pacific macro strategy at Wells Fargo, said: “Persistent caution from the Bank of Japan, the attractive carry on long-dollar/short-yen positions, and ongoing pressure on Japanese government bond yields from potential fiscal expansion—all of these could keep the yen under weakness.”
Sterling traded at $1.3337, near its highest level since 28 October. The Swedish krona weakened against both the euro and the dollar after annual inflation slowed in November.
The Chinese yuan dipped slightly but remained close to a 14-month high, after the central bank set its reference rate weaker than expected for the sixth consecutive session—a signal of caution over rapid currency appreciation.
Despite trade tensions, slow growth, low interest rates, and declining foreign investment, the yuan is on track for its best annual performance since the pandemic year of 2020.
