The U.S. dollar slipped on Thursday as a fresh batch of underwhelming economic data strengthened expectations that the Federal Reserve will cut interest rates next week. The soft performance provided breathing room for the yen and lifted the euro to its strongest level in nearly seven weeks, adding momentum to global currency markets already anticipating a shift in U.S. monetary policy.
Uncertainty around the future leadership of the Federal Reserve added another layer of intrigue. Investors are closely watching speculation that White House economic adviser Kevin Hassett may replace Jerome Powell when his term ends in May. Market analysts say Hassett is widely expected to favor deeper rate cuts—an outlook that could put additional pressure on the dollar if confirmed. President Donald Trump said he expects to reveal his pick early next year, stretching what has already been a long selection process.
Bond investors have expressed concern that a Hassett-led Fed could move aggressively to lower rates in line with Trump’s preferences, according to reports. Markets are currently pricing in an 89% chance of a quarter-point cut at next week’s meeting, with nearly 90 basis points of total easing expected by the end of next year. Still, analysts at Capital Economics warn that investors may be overestimating how far the Fed will go, arguing that the underlying strength of the U.S. economy could limit deeper cuts.
With sentiment firmly tilted toward easing, the dollar index hovered near a five-week low at 98.919, bringing its annual loss to almost 9%. The euro, meanwhile, held steady at $1.1674 after briefly touching its highest level since mid-October, driven by surprisingly strong euro zone business activity. The currency is now up more than 12% this year, marking its strongest annual performance since 2017. Analysts attribute the rally to both weakness in the dollar and improving economic signals across Europe.
Elsewhere, the yen traded at 155.18 per dollar as concerns of government intervention cooled, even as Japanese bond markets showed strain from a large fiscal spending plan. Sterling hovered near a one-month high at $1.33425, while the Australian and New Zealand dollars traded close to their strongest levels in more than a month. With upcoming central bank decisions in the U.S., Europe, and Japan, global currency markets remain on high alert for the next major policy signal.
source: cnbc