The U.S. dollar held steady on Thursday but continued to trade near recent lows, with softer economic data reinforcing expectations that the Federal Reserve will cut interest rates next week.
At 04:50 ET (09:50 GMT), the Dollar Index — which measures the greenback against six major peers — was little changed at 98.805, hovering around a five-week trough and almost 9% lower for the year.
Fed meeting in focus
A string of weaker U.S. data has strengthened the case for a Fed rate cut, putting considerable pressure on the dollar.
“After yesterday’s 32k drop in ADP payrolls, a Fed cut next week looks even closer to a certainty,” analysts at ING wrote. “The OIS curve is pricing in 25bp, meaning the Fed would face a potentially sharp adverse reaction in risk assets should it decide to hold.”
ING added that only another 15 basis points of cuts are priced in by March, suggesting markets are expecting a “hawkish cut” in December.
“Our view remains that data will justify two more cuts early next year, which underpins our view that the dollar won’t make a comeback even in the seasonally favorable first quarter.”
The U.S. currency also softened after President Donald Trump said he would announce his nominee to replace Jerome Powell early next year—extending a process he had previously claimed was already decided.
Analysts have warned that appointing White House economic adviser Kevin Hassett could weigh further on the dollar. According to the Financial Times, bond investors have raised concerns with the Treasury that Hassett might aggressively push rate cuts in line with Trump’s preferences.
Euro approaches seven-week high
In Europe, EUR/USD inched up 0.1% to 1.1677 after touching its strongest level in nearly seven weeks. The pair is now on track for yearly gains of nearly 13%, its best performance since 2017.
“We continue to have 1.170 as our EUR/USD target for next week’s Fed meeting and 1.180 as our year-end target,” ING said. “Seasonality should help, but it’s also worth noting that our short-term fair value model continues to point to around 1.1% undervaluation in the pair.”
The European Central Bank meets in two weeks and is widely expected to leave rates unchanged following a cumulative 200-basis-point easing cycle that ended in June.
Sterling slipped, with GBP/USD down 0.1% to 1.3340, after data showed U.K. construction activity contracted in November at the fastest pace since May 2020.
S&P Global’s construction PMI fell to 39.4 from 44.1, marking the longest downturn since the 2008 financial crisis and remaining well below the 50 threshold that separates growth from contraction.
Australian dollar rises as Asian currencies diverge
Across Asia, USD/JPY dipped 0.2% to 154.96 as the yen firmed in response to U.S. data that has strengthened expectations for a Fed cut.
USD/CNY edged up 0.1% to 7.0691, while AUD/USD gained 0.3% to 0.6615 as stronger Australian economic indicators supported the currency.