The dollar was set to end the week on a strong note on Friday, as it hovered near a two-year high, supported by a favorable US rate outlook, while the yen struggled to stay afloat as it rose. weakening again to a new low.
Currencies took a breather after the previous session’s huge moves, sparked by a broad rally in the greenback. The South Korean won hit a 15-year low, the Canadian dollar fell to its lowest level in more than four years, and the Australian and New Zealand dollars hit two-year lows .
The central banks of Brazil and Indonesia also moved to defend their ailing currencies on Thursday.
Movements at the start of Friday’s Asian session were more subdued, but that did not prevent the yen from weakening to a five-month low of 157.93 per dollar, while it remains under pressure from the reluctance of the Bank of Japan (BOJ) to further raise interest rates.
The BOJ kept interest rates unchanged on Thursday and its governor remained vague on when it might raise borrowing costs, just a day after the Federal Reserve indicated there would be fewer policy cuts. rate in the United States next year.
Some investors expected the Fed’s hawkish stance would give the BOJ some room to raise rates, or at least hint at an imminent hike in January, but the central bank ultimately only offered few clues.
“Based on Governor (Kazuo) Ueda’s comments yesterday, I think the BOJ will likely raise interest rates a little more slowly over the coming year,” said Carol Kong, currency strategist at the Commonwealth Bank of Australia. “The basic assumption now is that the next rise will be in March, but I would not rule out the possibility of a rise in January.
“The direction of travel is definitely up for the dollar/yen,” she added.
Data on Friday showed Japan’s core inflation accelerated in November as rising food and fuel costs hit households.
Sterling also slipped to a one-month low of $1.2490 early in the session.
Bank of England (BoE) policymakers voted 6-3 to keep interest rates on hold on Thursday, a wider split than economists predicted as officials disagree on how to respond to a slowing economy that remains plagued by inflationary pressures.
The result was interpreted as more pessimistic than expected by markets, with traders now estimating around 53 basis points in rate cuts for 2025, up from around 46 basis points previously.
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The Dollar Index remained strong and attempted to hit a new two-year high against a basket of currencies, with the Dollar Index up 0.02% at 108.45.
It is expected to end the week with a 1.4% gain, supported by expectations that U.S. rates will remain higher for longer. Markets are now pricing in a decline of less than 40 basis points for 2025.
Attention now shifts to the release of core PCE price data – the Fed’s preferred measure of inflation – later on Friday to provide further clues about the outlook for the Fed. American economy.
“With the Fed worrying about the risk of right-wing inflation, the core PCE index results have the potential to influence the dollar and stock sentiment,” said Chris Weston, head of research at Pepperstone.
The euro was last bought at $1.03635 and expected a weekly decline of 1.3% due to dollar strength.
Likewise, the British pound was heading for a weekly decline of 0.96%, while the yen was forecast to lose more than 2.5% for the week, its worst performance since September.
The Australian and New Zealand dollars also struggled to move away from two-year lows on Friday, with the Australian dollar losing 0.23% to $0.6223.
The kiwi slipped 0.28% to $0.5616. Both Antipodean currencies were on track for a weekly fall of more than 2%.
