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Dollar on pace for third straight weekly decline
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UK GDP data in focus
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Fed's less hawkish stance drags dollar
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Markets diverge from policymakers on rate cuts for next
year
(Adds analyst comment, remarks from Fed speakers, FX table,
updates prices)
By Joice Alves and Gertrude Chavez-Dreyfuss
LONDON/NEW YORK, Dec 12 (Reuters) - The U.S. dollar
drifted higher against major currencies on Friday after falling
in recent sessions, but was still set for its third straight
weekly drop amid the prospect of interest rate cuts by the
Federal Reserve next year.
Sterling also eased after data showed the UK economy
unexpectedly shrank in the three months to October.
The euro was flat at $1.1738 after hitting a more
than two-month high on Thursday.
The dollar index, which measures the U.S. currency
against six others, rose 0.1% to 98.39, recovering from a
two-month low hit on Thursday but still on track for its third
weekly decline with a 0.6% fall. For the month of December, the
greenback has been 1.1% weaker so far.
The index is also down more than 9% this year, on pace for
its steepest annual drop since 2017.
"It's Friday fatigue. The dollar is down on the week and
it's pretty much down the whole month," said Bob Savage, head of
markets macro strategy at BNY in New York. "And is it because
the Fed cut rates? Yes partially."
Against the yen, the dollar rose 0.3% to 155.98 yen
ahead of next week's Bank of Japan meeting, where the
broad expectation is for a rate hike. Markets are focused on
comments from policymakers on how the rate path will look in
2026.
Reuters reported that the BoJ would likely maintain a pledge
next week to keep raising interest rates, but stress that the
pace of further hikes would depend on how the economy reacts to
each increase.
The pound edged down 0.1% against the dollar to
$1.3375, but was trading near a seven-week high hit on Thursday,
after economic data that was likely to boost expectations for
Bank of England interest rate cuts.
Both sterling and the euro are poised for their third
straight week of gains against the dollar.
UNCERTAINTY OVER U.S. MONETARY POLICY NEXT YEAR
The Fed cut rates as expected this week but comments from
Chair Jerome Powell and the accompanying statement were viewed
by investors as less hawkish than expected and reinforced
dollar-selling momentum.
"That was a neutral cut. Yes, the board is divided and
we saw that in the dissents," said BNY's Savage. "But it's not
fair to say that the Fed is going to raise rates like what the
other central banks are talking about like the ECB (European
Central Bank) and RBA (Reserve Bank of Australia)."
Investors face uncertainty over the path of U.S. monetary
policy next year as inflation trends and labor 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.
Fed officials who voted against the U.S. central bank's
interest rate cut this week said on Friday they are worried that
inflation remains too high to warrant lower borrowing costs,
particularly given the lack of recent official data about the
pace of price increases.
How monetary policy evolves will hinge on economic data that
is still lagging from the impact of the 43-day federal
government shutdown in October and November. The U.S. is heading
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 central bank's independence under
Trump.
Across the Atlantic, sterling slipped on the back of
data showing gross domestic product contracted by 0.1% in the
August-to-October period. Economists polled by Reuters had
forecast a flat reading.
"At this stage it is not totally clear whether the recent
weakness of the economy marks a fundamental downturn or whether
it reflects a pre-Budget dip in spending and whether any such
moves are temporary," said Philip Shaw, chief economist at
Investec.
Finance minister Rachel Reeves delivered a tax-raising
budget on November 26.
The latest data cemented bets that the BoE will cut rates
next week, though such a move has been nearly fully priced in
for weeks.
In other currencies, the Swiss franc steadied at
0.7951 per U.S. dollar, after rising to an almost one-month high
on Thursday after the Swiss National Bank left its policy rate
unchanged at 0% 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.
Currency
bid
prices
at 12
December
? 03:26
p.m. GMT
Descript RIC Last U.S. Pct YTD High Low
ion Close Chang Pct Bid Bid
Previous e
Session
Dollar 294
Euro/Dol Dollar/Y 5 .57
Euro/Yen Dollar/S Sterling % 9 336
?
Dollar/C 755
Aussie/D % 7 664
7
Euro/Swi Euro/Ste NZ % 798
ollar
Dollar/N ? % 060
3
Euro/Nor 5
Dollar/S % 413
Euro/Swe 4
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