The U.S. dollar fluctuated on Thursday after recent weak economic data significantly strengthened expectations that the Federal Reserve will cut interest rates in its upcoming meeting. the Dollar Index, which tracks the U.S. currency against six major currencies, stood largely unchanged at 98.805, a relatively low level not seen in five weeks, reflecting a nearly 9% decline in the dollar’s strength this year.
The weak economic data may be the cause of increasing pressure on the dollar, as the ADP report showed a 32,000 drop in private sector jobs, which raised the likelihood of a rate cut by the Fed next week. According to analysis from ING, a 25 basis point cut now seems more likely, with a high probability that the Fed will face a negative reaction in high-risk asset markets if it decides to hold.
However, expectations beyond the December Fed meeting suggest the market only anticipates a modest additional cut of 15 basis points by March. Therefore, short-term expectations indicate a shift towards a more hawkish policy from the Fed in December.
Pressure on the dollar has also increased with U.S. President Donald Trump’s announcement that he will reveal his pick to succeed Federal Reserve Chairman Jerome Powell early next year. These remarks come after a selection process that has lasted months, adding more uncertainty to U.S. monetary policy moving forward. If White House economic advisor Kevin Hassett is chosen, analysts believe it could pressure the dollar, as expectations grow for more aggressive rate cuts in line with Trump’s preferences.
On the other hand, the euro continued its strong performance, with the EUR/USD pair rising 0.1% to 1.1677, reaching its highest level in nearly seven weeks. The euro is also on track for annual gains of around 13%, marking its largest increase since 2017. Analysts continue to target 1.170 for the EUR/USD in the upcoming Fed meetings, with expectations that the European currency could reach 1.180 by year end.
Meanwhile, the British pound fell 0.1% to 1.3340 against the U.S. dollar after data showed that British construction activity declined at the fastest pace since May 2020. The S&P Global construction PMI dropped to 39.4 in November from 44.1 in October, extending the sector’s downturn and indicating mounting economic pressures in the UK.
In Asian markets, the dollar fell 0.2% against the Japanese yen to 154.96, while the Australian dollar gained further, rising 0.3% to 0.6615 against the U.S. dollar. The Australian economy is showing signs of strength, which supports expectations that the Australian dollar will continue to make gains in the coming period.
Stay informed about global markets through our previous analyses. and Now, you can also benefit from LDN company services via the LDN Global Markets trading platform.
