Dollar on track for worst week in four months as case for Fed cut builds

SINGAPORE: The US dollar was heading for its worst weekly performance since late July on Friday as traders ramped up bets for further monetary easing from the Federal Reserve next month, while liquidity was thinned by the U.S. Thanksgiving holiday.

The dollar index , which measures the greenback’s strength against a basket of six major peers, was last trading up 0.1% at 99.624, recovering some ground after five days of decline pushed it to its worst one-week loss since July 21.

U.S. Fed funds futures are pricing an implied 87% probability of a 25-basis-point cut at the Federal Reserve’s next policy meeting on December 10, compared to a 39% chance a week earlier, the CME Group’s FedWatch tool showed.

The yield on 10-year Treasury bonds was last up 0.8 basis point at 4.0037%, rebounding after five days of decline that saw the 4% threshold briefly crossed twice.

In Asia, the Japanese yen fluctuated between gain and loss after a period of decline.

It was last trading 0.1% weaker at 156.385 yen as labour market and inflation data firmed up the case for monetary easing in Asia’s second-biggest economy, against a backdrop of persistent weakness in the currency that have led to prospect of intervention from the Ministry of Finance.

The currency had briefly edged higher on news that consumer prices in Tokyo rose 2.8% in November, slightly faster than economists had expected and exceeding the Bank of Japan’s 2% target.

“With the labour market still tight and inflation excluding fresh food and energy set to remain above 3% for now, the Bank of Japan will resume its tightening cycle over the next couple of months,” analysts from Capital Economics wrote in a research report. “The upshot is that the case for tighter monetary policy remains intact.”

The yen is on track for a third month of decline as Prime Minister Sanae Takaichi sets out a 21.3 trillion yen ($135.40 billion) stimulus package, while the Bank of Japan has held off hiking interest rates even as inflation runs above target.

The euro stood at $1.1600 , little changed so far in Asia, as Ukraine’s President Volodymyr Zelenskiy on Thursday said Ukrainian and U.S. delegations are to meet this week to work out a formula discussed at talks in Geneva to end war with Russia and provide security guarantees for Kyiv.

Sterling was 0.1% weaker at $1.323 so far on the day, heading for its best weekly performance since early August, after Britain’s finance minister, Rachel Reeves, revealed plans to raise taxes by 26 billion pounds ($34 billion) on Wednesday.

Reeves fought back on Thursday against criticism of spending plans, which will fund extra welfare spending by raising the country’s tax burden to a post-World War Two high.

The Australian dollar fetched $0.6536 , up 0.1% in early trade, after data showed private sector credit increased 0.7% in October compared with the previous month, accelerating slightly from the prior month’s print.

The offshore yuan traded at 7.074 yuan per U.S. dollar , steady in early Asian trade and on track for its best monthly performance since August.

The kiwi traded at $0.5725 , edging 0.1% weaker at the end of its biggest one-week surge since late April.