The dollar was headed for its best week in more than a month on Friday, buoyed by expectations of an interest rate cut from the Federal Reserve and speculation that Donald Trump’s policies could stoke inflation when He will take office in January.
The greenback rose to a one-year high against a basket of currencies at 106.88, aiming for a weekly gain of 1.8%, which would be its best performance since September.
The euro is on track to achieve its worst weekly performance in seven months, with a drop of 1.75%. The common currency last bought at $1.0530, approaching a one-year low hit in the previous session.
Sterling fell 0.02% to $1.2666 and is expected to lose 2% for the week, its worst weekly fall since January 2023.
Fed Chairman Jerome Powell said Thursday that the central bank does not need to rush to lower interest rates, citing continued economic growth, a strong jobs market and stagnant inflation as reasons of caution against too rapid a relaxation of policy.
Traders responded by reducing bets on the pace and depth of future U.S. rate cuts, with Fed funds futures now implying just 71 basis points of easing by the end of the year. end of 2025.
The price for a 25 basis point cut next month also fell to 48.3%, from 82.5% a day ago, according to the CME’s FedWatch tool.
“Markets simply took (Powell’s) comments at face value and therefore lowered expectations for the pace of FOMC cuts,” said Carol Kong, currency strategist at the Commonwealth Bank of Australia (CBA). .
“We still think a 25 basis point cut in December is likely. I think that’s a reasonable base, but I think Powell’s comments just highlighted the resilience of the U.S. economy.
“Markets will focus on the prospect of President Trump’s policy agenda, so in the short term we could see further gains in the US dollar.”
Raising tariffs and tightening immigration under President-elect Trump’s new administration are expected to fuel inflation, which could slow the Fed’s easing cycle longer term.
Expectations of a larger deficit are also pushing up U.S. Treasury yields, providing further support to the dollar. [US/]
Faced with the resurgence of the dollar, the yen is once again in the spotlight, as it continues to weaken, sinking into a zone that has triggered the intervention of Japanese authorities in the past.
The yen was 0.2% lower at 156.57 per dollar, on track for a 2.5% weekly decline.
The Japanese currency has fallen 11% since its September peak and surpassed the level of 156 per dollar for the first time since July in the previous session.
“The pace is always more important than the level. Given that the yen has already weakened by 11% against the dollar over the past two months, I think we are getting closer to real intervention,” said Mr. Kong of the CBA.
Data on Friday showed Japan’s economy grew 0.9% year-on-year in the July-September quarter, slowing from the previous three months due to tepid capital spending.
Elsewhere, the Australian dollar fell 0.06% to $0.6450 and is expected to lose just over 2% for the week, its worst weekly performance in four months.
The New Zealand dollar was also expected to fall 2% weekly. It fell 0.05% to $0.5846, near its lowest level in a year.
As for cryptocurrencies, bitcoin fell back below $90,000 as some investors took profits after a meteoric rise.
The world’s largest cryptocurrency surged nearly 30% over two straight weeks on speculation that more favorable U.S. regulation was imminent under the Trump administration and could pave the way for a new boom for all corners of the asset class.
However, some remain cautious about the incessant rise of bitcoin and the risks linked to its volatility.
“Multiple risk factors are converging. With cryptocurrencies reaching all-time highs, FOMO and risks are also at all-time highs,” said Joshua Chu, co-chairman of the Web3 Association of Hong Kong.
“This factor in the traditional rule of profit-taking means that non-institutional investors who continue the FOMO rally will take considerable risks.”
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