Dollar Slips but Remains on Track for Weekly Gains

Investing.com - The US dollar faced a slight decline on Friday; however, it remained on course for substantial weekly gains. This performance is driven by expectations of a robust US economy and reduced possibilities of Federal Reserve interest rate cuts throughout the year.

The US Dollar Index, which measures the greenback against a basket of six other major currencies, was down by 0.3% at 108.900. This drop came after the index had reached a peak it hadn't seen in over two years the previous day.

The Dollar's Strong Position

Currently, the index is expected to register weekly gains of about 1%, marking its best week in over a month. Traders are optimistic about a more hawkish stance from the Federal Reserve alongside a resilient performance by the US economy.

Manufacturing activity data for December has shown stronger results than anticipated, setting expectations higher as the more closely observed ISM manufacturing index is due for release later in the session. It is projected to cool slightly to 48.2, following a five-month high of 48.4 in November. Although this marks the eighth consecutive month below the 50-point threshold, it does remain above a level of 42.5, which suggests overall economic growth.

Markets are also gearing up for the significant monthly jobs report coming at the end of next week, alongside another Federal Reserve meeting planned for this month.

“Markets are fully expecting a hold in January,” analysts at ING stated in a note. “If the dot plot serves as a benchmark for rate expectations for the coming months, then the bar for any data surprises that could affect the dollar’s considerable rate advantages is significantly raised.”

The Euro's Performance

On a different note, the Euro witnessed a slight bounce, rising by 0.4% to 0.0042. This rebound came after the currency had dropped nearly 1% the previous session to attain a level not seen in over two years.

The Eurozone's jobless data was more favorable than anticipated, contributing to the single currency's recovery. Nonetheless, the Euro is still projected to decline about 1.5% for the week, marking its worst performance since November, particularly after new figures released earlier pointed to a faster decline in Eurozone manufacturing at the end of 2024.

Traders are bracing for further interest rate cuts from the European Central Bank in 2025, with expectations pricing in at least 100 basis points of reduction.

The British Pound also saw a modest increase of 0.3%, reaching 1.2422, bouncing back after a drop exceeding 1% on Thursday but remains on track for a weekly loss of approximately 1.4%. The Bank of England had maintained interest rates unchanged last month after consumer prices surged beyond targets, with roughly 60 basis points of cuts anticipated in 2025.

The Chinese Yuan's Slide

In Asia, the Chinese Yuan weakened, rising by 0.8% to 7.3587. It reached its highest level since September 2023.

A report from the Financial Times indicated that the People's Bank of China is likely to implement further cuts in interest rates in 2025 as it shifts towards a traditional monetary policy framework anchored by a singular benchmark rate.

This policy reform arrives amid ongoing challenges, as many liquidity measures have fallen short of effectively stimulating China's economy over the past two years.

Additionally, the Japanese Yen traded 0.1% lower to 157.31 after hitting a more than five-month high in late December, heavily influenced by a mainly dovish outlook for 2025 from the Bank of Japan.

Dollar, Euro, Yuan, Economy, Traders