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Investing.com - The U.S. dollar edged higher Friday as traders increasingly priced out the chance of a Federal Reserve rate cut next month, but was still poised for a weekly loss amid policy uncertainty as the government reopens.
At 04:05 ET (09:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 99.125, but was heading for a weekly fall of around 0.4%.
Dollar heads for weekly loss
The greenback has posted small gains Friday as more Fed officials signalled caution over further easing overnight, citing worries about inflation and signs of relative stability in the labor market.
Minneapolis Fed President Neel Kashkari told Bloomberg that he opposed a rate cut last month and is on the fence about December as well.
Additionally, both Alberto Musalem, president of the St. Louis Fed, and Cleveland Fed President Beth Hammack expressed concerns about policy becoming overly accommodative with inflation levels still elevated.
The probability of a quarter-point cut at the central bank’s next meeting on December 10 is now just over 50%, according to the CME Group’s FedWatch tool, down from a 63% chance on Thursday.
That said, traders are still wary of taking long dollar positions as they wait to assess a backlog of U.S. data following the government’s reopening.
“While the move in the dollar fits our bearish view, it feels a bit premature and at risk of rapid reversal should the initial batch of U.S. data prove not as bad as seemingly priced in,” said analysts at ING, in a note.
Sterling faces fiscal woes
In Europe, GBP/USD traded 0.2% lower to 1.3172, struggling to sustain its 0.5% overnight gain against a weaker dollar.
Its move lower came after a report by the Financial Times that British Prime Minister Keir Starmer and Finance Minister Rachel Reeves have abandoned plans to raise income tax rates, marking a sharp shift just weeks ahead of the November 26 budget.
“It’s not clear how Reeves plans to fill the £30bn fiscal hole without touching income tax,” said ING. “Media reports are currently suggesting a number of options being considered. One appears to be freezing the threshold for income tax brackets, which would have a similar fiscal effect as raising the rate on one bracket and could be well received by markets.”
EUR/USD traded largely unchanged at 1.1632, after bouncing to a two-week high in the previous session.
The latest growth data for the eurozone is due later in the session, and is expected to show that the region’s gross domestic product rose 0.2% in the third quarter, on a quarterly basis.
This would represent a slight uptick from the 0.1% growth seen in the previous quarter.
“EUR/USD has now entirely erased its undervaluation gap, and we now feel less confident about short-term upside unless U.S. data come in soft. We see some correction risks today, with a return below 1.160 surely possible,” said ING.
Yuan slips slightly after weak data
In Asia, USD/CNY traded 0.1% higher to 7.1007 after the release of mostly weak economic readings for October.
Chinese industrial production grew less than expected in the month, while fixed asset investment shrank far more than expected, with the latter signaling growing reluctance towards capital spending among Chinese businesses.
Retail sales were a sole bright spot, rising slightly above expectations, although growth still slowed from the prior month.
USD/JPY edged marginally higher to 154.60, after retreating from the 155 level on Thursday. Traders were closely watching this level, given that it had currency market drawn intervention from the government in the past.
AUD/USD gained 0.6% to 0.6577, after stronger-than-expected employment data dampened expectations for more interest rate cuts by the Reserve Bank of Australia.