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The US dollar edged lower on Monday, as traders digested last week’s jobs report pointing toward a likely Federal Reserve rate cut later this month. However, the greenback’s losses were modest, supported by ongoing geopolitical instability in the Middle East.
Dollar Shows Signs of Weakness
By 04:00 ET (09:00 GMT), the Dollar Index, which measures the dollar against a basket of six major currencies, was down by 0.1%, trading at 105.550. The dollar’s rally, initially fueled by Donald Trump’s presidential win, appears to be losing momentum as the year ends, with the Federal Reserve widely expected to reduce interest rates once again in December. This follows a stronger-than-expected jobs report for November, although the underlying economic challenges persist.
Despite these factors, the dollar has only dipped slightly—by less than 0.5%—over the past week. The currency still holds its position as a safe-haven asset, bolstered by the renewed geopolitical risks in the Middle East. Rebel forces in Syria have ousted President Bashar al-Assad, while the ongoing Russia-Ukraine war and political instability in South Korea continue to elevate uncertainty.
Inflation Data to Guide Fed Policy
Looking ahead, Wednesday’s US consumer inflation data for November could offer further insights into the Federal Reserve’s rate-cut trajectory. Traders will be keen to assess whether inflationary pressures are easing or if further policy adjustments are needed.
Eurozone Faces Rate Cuts Amid Political Turmoil
In Europe, the euro gained slightly, with EUR/USD rising to 1.0579. Traders are anticipating the European Central Bank’s (ECB) policy decision on Thursday, its final meeting of the year. The ECB is expected to announce another 25-basis point rate cut, its fourth such move this year. Despite inflation rising in the Eurozone, it remains on track toward the ECB’s 2% target, with easing wage pressures providing some relief. However, geopolitical risks—particularly around trade tariffs following Trump’s election—are weighing on Europe’s outlook.
Sterling Holds Steady Amid Inflation Challenges
GBP/USD rose by 0.3% to 1.2776. The British pound has been resilient as the Bank of England struggles with persistent inflation. Consumer prices in the UK increased by 2.3% in October, pushing inflation above the Bank’s target. The central bank cut rates in November for the second time in 2024 and is expected to proceed with a more gradual easing policy in 2025 compared to its counterparts.
Mixed Signals in Asia: BOJ and Economic Data
In Asia, USD/JPY rose by 0.3% to 150.44, as Japan’s revised GDP data showed stronger-than-expected growth in Q3, although still below the previous quarter’s pace. Investors remain divided on whether the Bank of Japan will raise rates next week following this mixed economic data.
China Faces Economic Challenges
USD/CNY rose 0.1% to 7.2748 after Chinese consumer inflation came in lower than expected in November. Despite recent stimulus efforts, producer price inflation remained subdued. The market is looking for cues from China’s upcoming Central Economic Work Conference for further stimulus measures from the People’s Bank of China.
Australian Dollar, South Korean Woes
AUD/USD rose by 0.9% to 0.6444 ahead of the Reserve Bank of Australia’s rate decision on Tuesday. While the RBA is expected to keep rates unchanged, it may soften its hawkish stance amid signs of economic slowdown in Australia.
USD/KRW climbed 0.5% to 1,431.49 as South Korea’s political crisis deepened. Prosecutors launched a criminal investigation into President Yoon Suk Yeol over a failed martial law attempt, raising concerns over the country’s stability and its impact on the won.
As the week unfolds, the dollar’s path will depend on inflation data, central bank policy moves, and developments in the Middle East and other global markets.
