The U.S. dollar surged to a 2.5-week high against major currencies on Friday, positioning itself for its strongest weekly gain in a month. Market expectations of a Federal Reserve interest rate cut next week, coupled with signals of a cautious stance on future reductions, bolstered the greenback’s appeal.
Dollar Outperforms Amid Global Rate Adjustments
The dollar gained traction against the euro and Swiss franc following recent rate cuts by the European Central Bank (ECB) and the Swiss National Bank (SNB). Against the yen, the U.S. currency strengthened amid speculation that the Bank of Japan (BOJ) may hold off on a rate hike during its upcoming meeting.
The dollar index, which measures the currency against six major peers, rose to 107.05, its highest level since November 26, marking a weekly gain of over 1%.
Fed Policy and Economic Signals
Despite softer-than-expected U.S. producer price index (PPI) data, the market remains confident that the Federal Reserve will announce a 25-basis-point rate cut on December 18. Rising unemployment claims further underscore a gradually cooling labor market, aligning with the Fed’s inflation goals.
However, traders are pricing in only a 21% probability of an additional rate cut in January, according to CME’s FedWatch tool.
“Recent Fed commentary and economic data show that while progress toward the inflation target has slowed, the economy remains resilient. This allows the central bank to adopt a more measured approach to easing in 2025,” noted Rodrigo Catril, senior FX strategist at National Australia Bank.
San Francisco Fed President Mary Daly echoed this sentiment earlier in December, supporting a December rate cut but advocating a cautious approach for subsequent decisions.
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