The U.S. currency was eyeing a weekly gain of 1.76%, which would mark its best performance since September
The dollar was set for its best week in more than a month on Friday, buoyed by expectations of fewer Fed rate cuts and the view that Donald Trump’s policies could further stoke inflation when he assumes office in January.
The U.S. currency stayed close to a one-year high against major currencies at 106.81 and was eyeing a weekly gain of 1.76%, which would mark its best performance since September.
The euro last bought $1.0541, staying near a one-year low touched in the earlier session. It was headed for a weekly drop of 1.67%, also its worst in more than a month.
Fed Chair Jerome Powell said on Thursday the central bank does not need to rush to cut interest rates, citing ongoing economic growth, a solid job market and sticky inflation as reasons for caution against easing policy too quickly.
Traders reacted by paring bets of the pace and scale of future U.S. rate cuts, with Fed funds futures now implying just 71 bps worth of easing by end-2025.
Pricing for a 25 basis point rate cut next month has also dropped to just 48.3% from 82.5% a day ago, shows the CME FedWatch tool.
Markets just took Powell’s comments at face value and therefore scaled back expectations for the pace of FOMC cuts, said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
Markets are going to focus on the prospect of President Trump’s policy platform, so in the near term, we could see further gains in the U.S. dollar, she said.
Higher trade tariffs and tighter immigration under President-elect Trump’s incoming administration are projected to fuel inflation, potentially slowing the Federal Reserve’s easing cycle longer term.
Expectations for deeper deficit spending are also lifting U.S. Treasury yields, providing the dollar with additional support.
Against a resurgent dollar, the yen has once again come under the spotlight, as it continues to drop deeper into a territory that triggered intervention from Japanese authorities in the past.
The yen was down 0.1% at 156.39 per dollar, on track for a weekly drop of 2.4%.
Elsewhere, the Australian dollar gained 0.12% to $0.6462 and was set to lose 1.85% for the week, its worst weekly performance in four months.
The New Zealand dollar was similarly eyeing a weekly decline of 1.8%. It last rose 0.19% to $0.5860, staying near a one-year low.
The onshore yuan slid against the dollar and last stood at 7.2234, on course for a seventh consecutive weekly decline – its longest losing streak since 2021.
