The U.S. dollar steadied on Friday but was set to break its six-week winning streak as investors reassessed the Federal Reserve’s monetary policy path and looked ahead to the inauguration of President-elect Donald Trump next week.
Dollar Dips on Fed Rate Cut Expectations
The dollar index, which measures the greenback against six major currencies, edged up 0.1% to 109.08 on Friday. However, it was poised to end the week down 0.5%, marking its first weekly decline in seven weeks. Softer U.S. core inflation data and dovish remarks from Federal Reserve Governor Christopher Waller fueled expectations of up to four rate cuts this year, weighing on the dollar.
Markets are pricing in about 43 basis points of rate cuts in 2025, as signs of cooling inflation provide room for monetary easing.
Yen Strengthens on BOJ Rate Hike Bets
The yen gained over 1% against the dollar this week, with investors anticipating a potential rate hike by the Bank of Japan (BOJ) next week. The yen was last down 0.37% at 155.69 per dollar after hitting a one-month high of 154.98 earlier in the session.
Japanese officials’ comments and strong domestic data, including persistent price pressures and wage growth, have increased the likelihood of a rate hike. Traders are pricing in an 80% chance of BOJ action, according to sources cited by Reuters.
Sterling, Euro, and Yuan Stay Subdued
The British pound slipped 0.35% to $1.2194, hovering near its 14-month low. Unexpectedly weak December retail sales data heightened fears of a potential economic contraction in the U.K. during the fourth quarter.
The euro was flat at $1.03, maintaining its position amid a lack of fresh catalysts.
China’s yuan traded near 7.3290 per dollar after stronger-than-expected GDP data showed the economy grew 5.4% year-on-year in the fourth quarter, aligning with Beijing’s 5% annual growth target.
Bitcoin Rallies Amid Policy Speculation
Bitcoin rose 2% to $102,246 on Friday, buoyed by optimism that the incoming Trump administration might introduce policies favorable to the cryptocurrency sector.
Outlook: Trump’s Inauguration and Market Volatility
With Trump’s inauguration scheduled for Monday, investors are awaiting signals on his economic and trade policies, particularly his stance on China and inflation-inducing measures. Markets are bracing for heightened volatility as the new administration takes office.
This week’s currency market activity reflects a delicate balance of monetary policy expectations and geopolitical uncertainty, leaving investors cautious ahead of key developments next week.