Dollar eyes weekly gain on slower Fed easing, inflation outlook
The dollar was headed for its best week in more than a month on Friday, buoyed by expectations of fewer Federal Reserve rate cuts and the view that Donald Trump’s policies could further stoke inflation when he assumes office in January.
The greenback hovered near a one-year high against a basket of currencies at 106.88, eyeing a weekly gain of 1.8%, which would mark its best performance since September.
The euro was in turn on track for its worst weekly performance in seven months with a fall of 1.75%. The common currency last bought $1.0530, languishing near a one-year low hit in the previous session.
Sterling traded 0.02% lower at $1.2666 and was similarly set to lose 2% for the week, its worst weekly fall since January 2023.
Fed Chair Jerome Powell said on Thursday the central bank does not need to rush to lower interest rates, citing ongoing economic growth, a solid job market and sticky inflation as reasons for caution against easing policy too quickly.
Traders reacted by paring bets of the pace and scale of future U.S. rate cuts, with Fed funds futures now implying just 71 basis points worth of easing by end-2025.
Pricing for a 25 bp rate cut next month has also fallen to just 48.3% from 82.5% a day ago, according to the CME FedWatch tool.
“Markets just took (Powell’s) comments at face value and therefore scaled back expectations for the pace of FOMC cuts,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).
“We still think a December 25bp cut is likely. I think that’s a reasonable baseline, but I think Powell’s comments just underscored the resilience of the U.S. economy.
“Markets are going to focus on the prospect of President Trump’s policy platform, so in the near term, we could see further gains in the U.S. dollar.”
Higher trade tariffs and tighter immigration under President-elect Trump’s incoming administration are projected to fuel inflation, potentially slowing the Fed’s easing cycle longer term.
Expectations for deeper deficit spending are also lifting U.S. Treasury yields, providing the dollar with additional support.(Cay)
Source: CNBC
