The U.S. dollar traded slightly higher on Friday, maintaining its strength after Federal Reserve Chair Jerome Powell’s latest remarks dampened hopes for another imminent rate cut. The euro also firmed, supported by the European Central Bank’s steady policy stance.
At 05:10 ET (09:10 GMT), the Dollar Index, which measures the greenback’s value against six major peers, rose 0.1% to 99.380, having touched a three-month peak the previous day.
Powell’s comments keep dollar supported
The greenback extended gains from earlier in the week after Powell signaled a more cautious approach to further easing. Following the Fed’s widely expected 25-basis-point rate cut on Wednesday, Powell noted that another reduction in December was “far from” guaranteed.
Market participants have since moderated expectations for an additional move, with Fed funds futures pricing a 74.7% chance of another quarter-point cut in December, down from 91.1% a week ago, according to CME’s FedWatch tool.
“The government shutdown has prevented jobs data from offering that catalyst, and Powell’s caution on a December cut has to be taken more at face value now,” analysts at ING wrote.
ECB holds rates steady; euro gains modestly
The euro edged up 0.1% to 1.1570 after data showed France’s annual inflation rate slowed to 0.9% in October from 1.1% in September. Investors are awaiting the eurozone’s CPI report later Friday, which is expected to confirm inflation cooling slightly to 2.1%.
On Thursday, the European Central Bank left its key deposit rate unchanged at 2% for the third consecutive meeting and reiterated that policy was in a “good place” as economic headwinds ease.
“The coming weeks will see Governing Council members offering their nuances to the policy-inflation-growth assessments. But don’t expect much. The ECB is clearly in a ‘good place’ at 2% and the bar for more easing remains high,” ING commented.
Sterling slips amid political tension in the UK
The pound eased 0.1% to 1.3143 as concerns rose over potential political instability surrounding Finance Minister Rachel Reeves. “Markets are wary that a change in Chancellor could herald more relaxed fiscal rules and additional borrowing, at a time when gilt issuance remains elevated. A surprise resignation, which looks unlikely, would, in our view, cause elevated volatility in gilts and the pound,” ING said.
Yen weakens despite strong inflation and output data
The Japanese yen lost early gains, with USD/JPY climbing 0.2% to 154.36. Tokyo’s consumer price index rose faster than expected in October, keeping core inflation above the Bank of Japan’s 2% target. Industrial production data also beat forecasts, although retail sales underperformed.
While the BOJ left interest rates unchanged Thursday, Governor Kazuo Ueda said a potential hike could be considered soon, depending on wage trends.
Yuan steady near yearly highs; Aussie dollar dips
The Chinese yuan traded 0.1% lower at 7.1143 after a softer midpoint fix from the People’s Bank of China. Official PMI data showed China’s manufacturing activity contracted for a seventh straight month in October, while the composite index was close to turning negative, reflecting weak domestic demand and the drag of U.S. tariffs.
Despite the slowdown, the yuan remains near its strongest level in a year, supported by consistent central bank intervention.
Meanwhile, the Australian dollar fell 0.2% to 0.6542 as recent CPI data reduced expectations of further rate cuts by the Reserve Bank of Australia. The currency ended October down about 1%, extending its recent losing streak.