Dollar set for weekly gains on waning rate cut expectations; yen gains

Investing.com - The U.S. dollar slipped marginally lower Friday, but was still set for a weekly gain as traders trimmed bets on further policy easing from the Federal Reserve next month. 

At 04:20 ET (09:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 100.042, on course for a weekly gain of 0.8%. 

Dollar set for weekly gains

The U.S. currency received a boost on Thursday after the delayed U.S. nonfarm payrolls report painted a mixed picture of the country’s labor market, reinforcing the view that the Fed is likely to hold interest rates unchanged at its December meeting.

The minutes from the Fed’s October meeting minutes showed a split among policymakers over whether to cut in December, and with the jobs report failing to offer a definitive picture a hold seems the likely result.

“This week’s events only seem to have delayed expectations for the Fed easing cycle,” said analysts at ING, in a note. “The terminal rate for the easing cycle is still priced around the 3.00% area for next year, but the market has switched to favoring the next cut in January (24bp priced) versus December (10bp priced).”

There are more economic numbers to digest Friday, with the focus likely to be on the S&P PMI readings and final readings for November consumer sentiment. 

Euro helped by solid PMI data

In Europe, EUR/USD edged 0.1% higher to 1.1538, helped by data showing eurozone business activity grew steadily this month as services expanded at the quickest pace in 18 months.

The HCOB flash eurozone composite PMI, compiled by S&P Global, declined slightly to 52.4 in November from a more-than two-year high of 52.5 in October, marking its 11th consecutive month above the 50.0 mark that separates growth from contraction.

“These [PMI numbers] have been a source of comfort to the euro in that business sentiment has stayed relatively constructive, suggesting businesses are finding workarounds for the new tariff environment,” said ING.

“If EUR/USD can somehow make it back above 1.1560/65 today, it will have had a good week.”

GBP/USD traded 0.1% higher to 1.3085, with sterling edging higher even after U.K. retail sales fell 1.1% in October and a closely watched gauge of household sentiment fell this month, adding to signs of waning consumer spending ahead of finance minister Rachel Reeves’ budget next week.

Yen gains on lifted rate hike expectations 

In Asia, USD/JPY dropped 0.4% to 156.76, with the yen in demand after data showed core consumer inflation stayed above the BOJ’s 2% target in October, keeping alive the possibility of a rate hike as soon as its next policy meeting on December 18 and 19.

The Bank of Japan will discuss at upcoming policy meetings the feasibility and timing of a rate hike with the focus on next year’s wage-growth impulse, governor Kazuo Ueda said, signalling the chance of a near-term rise in still-low borrowing costs.

This follows the news that Japan’s parliament on Friday approved a ¥21.3 trillion ($135 billion) stimulus package, clearing the way for one of the country’s largest spending drives since the pandemic as the government seeks to revive consumption and support key industries.

USD/CNY edged 0.1% lower to 7.1093, while AUD/USD gained 0.2% to 0.6450, but still on track for hefty losses this week as risk appetite dwindled.