The U.S. dollar is currently stable but trading near a five-week low, with the dollar index languishing at 98.94 after nine consecutive days of decline.
This weakness is primarily driven by recent lackluster U.S. economic data, which has solidified market expectations for a Federal Reserve (Fed) rate cut next week. Traders are currently pricing in an 85% chance of a quarter-point rate cut, according to LSEG data.
Investors are actively weighing the prospect of White House economic adviser Kevin Hassett potentially taking over as Fed Chair when Jerome Powell’s term ends in May. Analysts suggest Hassett, who is expected to favor aggressive rate cuts aligned with President Trump's preferences, could further pressure the dollar.
While a near-term cut is priced in, some experts, like Thomas Mathews of Capital Economics, believe the dollar's fall will be limited as investors may be overestimating the extent of medium-term rate cuts, given the underlying strength of the U.S. economy.
Euro: The euro continued its rally, easing slightly to $1.1657 but remaining near a seven-week high. It is on track for its biggest annual gain since 2017, up over 12% this year, fueled by dollar weakness and recent data showing the Eurozone's business activity expanded at its fastest pace in 30 months in November. The European Central Bank (ECB) is widely expected to keep rates unchanged at its meeting in two weeks.
Yen: The yen held steady at 155.22 per dollar. Worries about intervention by Tokyo authorities resurfaced, providing some support. Separately, three government sources indicate the Bank of Japan (BOJ) is likely to raise rates in December, though long-term yen weakness is still anticipated due to attractive carry trades and persistent topside pressure on JGB yields.
Sterling hovers near its highest point since October 28 at $1.3337. China's yuan, despite trade war and growth concerns, weakened slightly but remains near a 14-month high and is heading for its biggest annual gain since 2020.
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