Investing.com – The US dollar fell on Friday, but remained on track for a strong weekly performance, supported by expectations of outperforming US economic performance and thus reducing Federal interest rate cuts this year.
The index, which tracks the greenback against a basket of six other currencies, fell 0.3% to 108,900, retreating after reaching the highest level in more than two years on Thursday.
The dollar is still strong
The index is headed for a weekly gain of about 1%, which would be its best weekly performance in more than a month, as traders continue to factor in a more hawkish Federal Reserve and a resilient U.S. economy.
US manufacturing activity data for December, as determined by , came in stronger than expected on Thursday, setting the stage for a widely watched Institute for Supply Management release scheduled for later in the session.
This is expected to ease slightly to 48.2 last month, down from a five-month high of 48.4 in November. It was the eighth month in a row that the measure was below the 50-point threshold, although the figure remained above the 42.5 level that the ISM says indicates a broader economic expansion.
Markets are also looking forward to the important monthly jobs report at the end of next week, and the next Federal Reserve meeting is also scheduled for this month.
“Markets expect complete stability in January,” analysts at ING said in a note. “If the dots chart actually serves as a benchmark for interest rate expectations for the next three months, the bar for surprising data that seriously threatens the dollar's significant interest rate advantage has been set higher.”
Euro is bouncing, but faces a big weekly decline
In Europe, the index rose 0.4% to 0.0042, rebounding somewhat after falling nearly 1% in the previous session to its lowest level in more than two years.
The single currency helped the number of unemployed people rise less than expected in December, according to data released on Friday.
However, the euro is still headed for a weekly decline of about 1.5%, the worst since November after data released earlier Thursday showed the euro zone fell at a faster rate at the end of 2024.
Traders expect further interest rate cuts from 2025, with markets pricing in at least 100 basis points of easing.
It traded up 0.3% at 1.2422, after falling more than 1% on Thursday, and is on track to lose nearly 1.4% for the week.
It kept interest rates unchanged last month after consumer prices rose above target, and traders expect cuts of around 60 basis points from the Bank of England in 2025.
The yuan falls after the report of interest rate cuts from the People's Bank of China
In Asia, it rose 0.8% to 7.3587, with the pair rising to its highest level since September 2023.
The People's Bank of China will cut interest rates further in 2025, as the central bank shifts to a more conventional monetary policy structure under a single benchmark interest rate, the Financial Times reported.
The monetary policy reform comes as a series of liquidity measures have largely failed to stimulate the Chinese economy over the past two years.
It traded down 0.1% at 157.31, after hitting its highest level in more than five months in late December on the back of a mostly pessimistic 2025 outlook from the Bank of Japan.
