The U.S. dollar weakened on Friday as investors turned cautious ahead of next week's pivotal central bank meetings, particularly focusing on the Federal Reserve’s expected interest rate cut. Both the euro and yen gained strength amid this uncertainty.
While it's widely anticipated that the Fed will reduce rates, there’s still debate on whether the cut will be by 25 or 50 basis points. Current market pricing, as reflected by the CME FedWatch tool, shows a 43% chance of a 50 basis point cut, up from 27% the day before. A 25 basis point cut remains the most likely scenario, with a 57% probability.
Meanwhile, the euro held steady at $1.1083, buoyed by the European Central Bank’s (ECB) decision to lower rates on Thursday.
The dollar index, which tracks the greenback against six major currencies including the euro, slipped to 101.11.
The yen rose 0.3%, reaching 141.38 per dollar, near its recent eight-and-a-half-month high of 140.71 ahead of the BoJ’s meeting.
Sterling also saw a slight uptick, rising 0.1% to $1.31415 as traders await the BoE’s upcoming meeting. Markets imply around an 80% chance that the BoE will keep interest rates unchanged, following a 25 basis point cut in August.
Mixed U.S. economic data has complicated expectations around the Fed’s decision. While Thursday’s report indicated that layoffs remained low, producer prices increased slightly more than anticipated in August, driven by higher service costs.
