Dollar Set for Third Weekly Gain as Strong U.S. Data Pushes Back Rate Cut Expectations

The U.S. dollar edged slightly lower on Friday, but remained on track for another weekly gain as stronger-than-expected American economic data reduced expectations of an early interest rate cut by the Federal Reserve.

By 04:05 ET (09:05 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, slipped 0.1% to 99.095. Even so, the index was poised to close the week up around 0.2%, marking its third consecutive weekly advance.

The dollar’s resilience this week has been underpinned by a string of upbeat U.S. data, most notably the sharp drop in initial jobless claims to 198,000, well below forecasts of 215,000. The figures reinforced the view that the U.S. labour market remains firm, prompting traders to push back expectations for the first Federal Reserve rate cut toward mid-year.

Comments from Federal Reserve officials added to the cautious tone around easing policy. Chicago Fed President Austan Goolsbee said the central bank should remain focused on bringing inflation down given the stability in employment. Kansas City Fed President Jeff Schmid described inflation as still “too hot,” while San Francisco Fed President Mary Daly said recent economic data continued to look encouraging.

Together, the data and commentary strengthened the perception that the Fed will keep interest rates higher for longer, providing ongoing support to the dollar.

Euro Finds Modest Support from German Data

In Europe, the euro edged higher, with EUR/USD trading at 1.1613 after data showed German consumer prices were unchanged in December, rising just 1.8% year on year. The figure sits below the European Central Bank’s 2% medium-term target.

The ECB has held rates steady since ending its rapid rate-cut cycle in June and has signalled it is in no hurry to adjust policy again, citing resilient growth and easing inflation pressures.

GBP/USD also ticked up slightly to 1.3392.

Yen Stabilizes After Official Warnings

In Asia, the yen clawed back some ground, with USD/JPY slipping 0.3% to 158.19 after the currency had hovered near 18-month lows. The move came after Japanese officials issued verbal warnings aimed at curbing further weakness.

Finance Minister Satsuki Katayama said Tokyo “won’t rule out any options” to counter excessive yen declines, including the possibility of coordinated intervention with the United States.

Elsewhere in the region, USD/CNY rose 0.1% to 6.9681, AUD/USD gained 0.1% to 0.6704 and NZD/USD advanced 0.3% to 0.5760.

Overall, the dollar’s steady performance reflects a market that is increasingly convinced U.S. interest rates will stay elevated for longer, even as other major economies edge closer to easing cycles of their own.