The U.S. dollar headed for its third straight weekly drop on Friday, hurt by the prospect of rate cuts next year after the Federal Reserve pushed back against hawkish market bets, lifting the euro and sterling to their highest since October.
The euro was steady at $1.1741 in early Asian hours after a 0.37% rise in the previous session, while the pound was marginally firmer at $1.33955.
Both are poised for their third straight week of gains as the dollar remains under pressure.
The Fed cut rates as expected this week but the comments from Fed Chair Jerome Powell and the accompanying statement were viewed by investors as less hawkish than expected and reinforced dollar selling momentum.
Ameriprise chief market strategist Anthony Saglimbene said while the verdict is still out on whether the Fed’s “as expected message” will help further a rally into year-end, the central bank’s avoidance of “surprising the market negatively may be enough for investors to avoid a lump of coal in December”.
Investors face uncertainty over the path of U.S. monetary policy next year as inflation trends and labour market strength remain unclear, with traders pricing in two rate cuts in 2026 in contrast with policymakers who see only one cut next year and one in 2027.
“We judge that concerns around the U.S. labour market will be one factor driving the FOMC to cut interest rates further next year,” Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia. “We expect three cuts in 2026 taking the funds rate to 2.75% to 3.0%.”
How monetary policy evolves from here will hinge on economic data that is still lagging from the impact of the 43-day federal government shutdown in October and November.
This comes as the U.S. heads into a midterm-election year that is likely to focus on economic performance, with President Donald Trump urging sharper rate reductions.
Also in the spotlight for markets is the question of who will become the next Fed Chair and how that will affect the growing worries about the Fed’s independence under Trump.
The dollar index , which measures the U.S. currency against six major rivals, was at 98.34, set for a weekly drop of 0.7%.
The index is down over 9% this year, on pace for its steepest annual drop since 2017.
The Japanese yen took advantage of the soft dollar and is poised to snap its two-week losing streak and eke out a small gain for the week. It fetched 155.61 per dollar ahead of next week’s Bank of Japan meeting where the broad expectation is of a rate hike.
The Australian dollar was steady at $0.6667 and the New Zealand dollar 0.14% firmer at $0.5815 as investors contend with diverging rates path with the next move in domestic interest rates likely to be up, even as are expected to keep falling.
Elsewhere, the Swiss franc strengthened to 0.7942 per U.S. dollar in Asian hours after a strong session overnight.
The Swiss National Bank left its at 0% on Thursday and said a recent agreement to reduce U.S. tariffs on Swiss goods had improved the economic outlook, even as inflation has somewhat undershot expectations.
