Dollar set for worst week since July as Fed rate cut looms
Dollar set for worst week since July as Fed rate cut looms
The dollar heads for its worst weekly drop since July as December rate-cut bets rise, with traders watching the BoJ outlook and upcoming data.
The U.S. dollar was headed for its worst weekly performance since late July on Friday as traders increased bets that the Federal Reserve will cut rates again next month. The dollar has dropped this week as traders conclude that weakening labor data will lead to more rate cuts, even as many Fed policymakers express concern about still-elevated inflation. It's a sign that markets are betting on a more accommodative stance in the near term, even as the inflation picture remains tricky.
Futures markets priced in about an 87% probability of a rate cut at the Fed's December 9-10 meeting, up from around 71% a week ago, according to the CME Group's FedWatch Tool. The dollar index dipped to around 99.4, on track for a roughly 0.6% weekly loss—the largest since July 21—reflecting the shifting tilt in policy expectations.
Attention turned to the Bank of Japan, where traders await signals from Governor Kazuo Ueda ahead of the December policy meeting. Analysts said a rate increase could be on the table if fiscal measures and other factors tilt the balance, though Ueda has been cautious in signaling a move. The prospect of BOJ action adds another layer of complexity for currency markets as traders weigh cross-border policy moves.
The broader backdrop includes a busy data calendar as markets navigate a potentially more accommodative stance from major central banks in coming weeks. The moves this week underscore how policy expectations can drive currency shifts even as inflation data keeps policymakers vigilant.
The overall mood in markets suggests traders will be watching for fresh data and any commentary from central bankers that might tilt probabilities for December and beyond.
Cover image source: European shares clock monthly gains on Fed rate cut hopes 🔗
