The United States dollar hovered near a five week low on Friday as traders positioned themselves for a possible interest rate reduction by the Federal Reserve next week. The dollar showed particular weakness against the Japanese yen, which strengthened on expectations that the Bank of Japan will resume raising rates later in December.
Investors widely expect a quarter point rate cut when the Federal Open Market Committee meets on December nine and ten. Market attention is now fixed on signals regarding future monetary easing. The dollar index, which tracks the currency against six major rivals, slipped by zero point two percent to ninety eight point nine two nine during early trading, close to Thursday’s five week low of ninety eight point seven six five. The index is on course for a weekly decline of zero point six percent.
Market data suggests traders are pricing in an eighty six percent chance of a rate cut next Wednesday, with several more likely in the coming year. Federal Reserve officials continue to monitor labour market conditions to assess whether the economy requires additional support. Recent figures showed applications for unemployment benefits in the United States falling to their lowest level in more than three years, although analysts cautioned that the Thanksgiving holiday may have influenced the result. The picture remains uncertain following delays and missing data caused by the prolonged government shutdown earlier this year.
Employment data that would normally have been published on Friday has been postponed until mid December. Instead, attention will be on the release of the Personal Consumption Expenditure deflator, one of the Federal Reserve’s preferred inflation measures. Economists expect a monthly rise of zero point two percent in the core reading for September. Analysts say a softer reading could encourage the Federal Open Market Committee to reduce rates.
The dollar lost a further zero point three percent to trade at one hundred fifty four point four six yen, its weakest level since November seventeen. Reports from Bloomberg and Reuters suggest that officials at the Bank of Japan are preparing to raise rates on December nineteen, provided no major economic shock occurs. The euro edged higher to one point one six five nine dollars and remains close to a three week peak. The British pound also advanced, moving towards a six week high amid a busy period of global central bank decisions.
The next two weeks will see policy announcements from the Reserve Bank of Australia, the Bank of Canada, the Swiss National Bank, the Bank of Japan, the European Central Bank, the Bank of England and Sweden’s Riksbank. The Australian dollar climbed to a two month high, while the Swiss franc also gained ground against the dollar.
The currency markets remained cautious but active, with investors closely watching inflation data, central bank commentary and political developments that could influence monetary policy direction in early twenty twenty six.