The United States dollar endured another challenging week, with the U.S. dollar index (DXY) closing down 0.5% and slipping through key support at 99.00.
Despite a modest rebound in Treasury yields across the curve, the Greenback remained firmly offered as traders strengthened bets on a further rate reduction by the Federal Reserve at next week’s meeting.
Expectations of a more dovish policy path beyond 2026 — after Chair Jerome Powell’s term ends — added further downward pressure.
The outlook for the dollar has been clouded by mixed commentary from policymakers, leaving markets unsure about the pace of rate cuts.
Friday’s data offered little clarity: inflation aligned broadly with forecasts, while the University of Michigan’s consumer sentiment survey showed a modest improvement.
Even so, markets remain convinced that easing is imminent. Futures imply an 86.2% probability of a cut on 10 December, with roughly 80 basis points of further easing priced in by the end of 2026, according to the CME Group FedWatch Tool.
Euro holds at 1.164 as Fed and ECB narratives take the stage
The EUR/USD currency pair steadied around 1.164 on Friday, leaving the pair up 0.4% for the week as traders positioned ahead of the Fed decision.
The U.S. dollar trimmed part of its earlier decline following U.S. data, but not enough to reverse the Euro’s weekly momentum.
Eurozone growth figures surprised to the upside, reinforcing resilience across the bloc, while consumer price data earlier in the week showed inflation ticking above the ECB's 2% target.
European Central Bank policymaker François Villeroy warned that the ECB is far from a comfortable position, with downside inflation risks outweighing the upside.
Persistent geopolitical tension — particularly the stalled Russia-Ukraine conflict — continues to cap the Euro’s broader upside, despite encouraging diplomatic signals between Washington, Kyiv and Moscow.
Aussie extends rally; RBA stance diverges from Fed
The Aussie pushed to its highest level since 18 September, gaining 1.4% for the week, as traders became increasingly confident the Reserve Bank of Australia will hold interest rates steady on 9 December.
Markets are also beginning to price the possibility of renewed tightening next year if inflation or wage dynamics re-accelerate.
The widening policy divergence with the Federal Reserve — now firmly leaning dovish - has offered the Australian dollar fresh support.
Stronger risk sentiment and sustained demand for commodity-linked assets have added to the bullish tone.
Sterling advances, Fed expectations bolster sentiment
The GBP/USD currency pair added 0.8% for the week, recovering part of Thursday’s pullback as broader U.S. dollar weakness helped lift the pair above key moving averages.
Expectations that the Fed will cut next week continue to underpin Sterling’s momentum.
The UK budget announced on 26 November, paired with a return to expansion for the UK's manufacturing PMI data, has supported the British currency.
Chancellor Rachel Reeves’ £26 billion revenue package aims to stabilise fiscal conditions without placing additional pressure on households, an approach welcomed by markets.
The Bank of England, meanwhile, is still expected to lower interest rates in December, potentially easing cost-of-living pressures further.
Yen strengthens; Fed easing bets collide with BOJ tightening signals
The USD/JPY currency pair briefly reclaimed the 155.00 handle after touching two-week lows at 154.30, but the pair still closed the week down 0.5% as renewed expectations of Fed easing weighed on the U.S. dollar.
The delayed September core personal consumption expenditures (PCE) price index came in slightly below expectations, while recent ADP data showed a surprise decline in net jobs, reinforcing perceptions of a weakening U.S. labour market.
In contrast, the Bank of Japan has been preparing the ground for a 25 basis point (bp) hike following its 19 December meeting.
Governor Kazuo Ueda cast doubt over the timing of subsequent increases, however.
Japanese officials continue to stress they remain ready to intervene against excessive Yen weakness, with the Cabinet Secretary reiterating that authorities will “take appropriate action” if FX moves become disorderly.
Economic Calendar Week Ahead
On Monday, Japan will release average cash earnings, the current account, bank lending data and final GDP growth figures. China will publish its balance of trade, with updates on imports and exports.
During Tuesday's trade, the United States will report NY Fed inflation expectations and the NFIB business optimism index.
The United Kingdom will issue the BRC retail sales monitor. Australia will publish final building permits, NAB business confidence, and the RBA will announce their interest rate decision and hold a press conference, which will be closely watched.
Japan will release speeches from BOJ Governor Ueda and machine tool orders.
On Wednesday, the U.S. will publish ADP weekly employment change, JOLTs job openings and the Redbook index.
South Korea will report its unemployment rate. Japan will release PPI inflation data. China will publish inflation and PPI numbers. The Eurozone will monitor an ECB speech from President Lagarde.
In Thursday's session, the United States will release the employment cost index before the Federal Reserve delivers its interest rate decision and press conference.
Canada will issue its Bank of Canada rate decision. The United Kingdom will report the RICS house price balance, while Australia will release employment change and the unemployment rate.
On Friday, the United States will publish its balance of trade, along with updates on imports, exports, initial jobless claims, PPI inflation and wholesale inventories.
Canada will release its balance of trade and associated import and export data. Japan will publish capacity utilisation and industrial production, while the United Kingdom will issue monthly GDP, its goods trade balance and industrial and manufacturing production. China will report vehicle sales.
