The US dollar held near a five-week low after weak economic data reinforced expectations that the Federal Reserve will cut interest rates next week, offering some support to the yen while pushing the euro to its strongest level in almost seven weeks.

Investors are also watching the growing possibility that White House economic adviser Kevin Hassett could succeed Jerome Powell as Fed chair when Powell’s term ends in May. Hassett is widely expected to favor further rate cuts.

President Donald Trump said this week he will announce his nominee early next year, extending a selection process that has stretched on for months, even though he previously claimed to have already made a decision.

Analysts warned that appointing Hassett could add pressure on the dollar, amid concerns among bond investors that he may push for aggressive rate cuts aligned with Trump’s preferences, according to the Financial Times.

Data from LSEG shows that traders are pricing in an 85% probability of a quarter-point rate cut next week.

Commerzbank currency strategists Thu Lan Nguyen and Antje Praefcke wrote: “A Fed rate cut next week is already priced in. What will matter for the dollar is whether there are new signals about the future policy path in the meetings that follow.”

The dollar index, which measures the US currency against six major peers, steadied at 98.94 after nine straight days of declines. It remained near a five-week low and is still down about 9% since the start of the year.

A Reuters poll showed a sizable minority of FX strategists expect the dollar to strengthen next year, though most still anticipate weakness in 2026 as rate-cut expectations build.

Thomas Mathews, head of Asia-Pacific markets at Capital Economics, said that given the strength of the US economy, markets may be overestimating how far the Fed will cut rates in the medium term—regardless of next week’s decision. “That could limit the dollar’s downside,” he added.

The euro slipped less than 0.1% to $1.1657 but remained close to the seven-week high touched in the previous session, supported by data showing the fastest expansion in eurozone business activity in 30 months during November.

The currency is up more than 12% this year, on track for its strongest annual gain since 2017, helped by dollar weakness driven earlier by trade tensions and more recently by rising expectations of a Fed rate cut.

The European Central Bank is set to meet in two weeks and is widely expected to leave interest rates unchanged, while markets price only a 25% chance of another cut next year.

The yen held steady at 155.22 per dollar, having recovered slightly from last month’s ten-month low, amid renewed speculation over possible Japanese intervention. Three government sources familiar with internal discussions told Reuters the Bank of Japan may raise rates in December, though the outlook beyond that remains unclear.

Chidu Narayanan, head of Asia-Pacific macro strategy at Wells Fargo, said: “Persistent caution from the Bank of Japan, the attractive carry on long-dollar/short-yen positions, and ongoing pressure on Japanese government bond yields from potential fiscal expansion—all of these could keep the yen under weakness.”

Sterling traded at $1.3337, near its highest level since 28 October. The Swedish krona weakened against both the euro and the dollar after annual inflation slowed in November.

The Chinese yuan dipped slightly but remained close to a 14-month high, after the central bank set its reference rate weaker than expected for the sixth consecutive session—a signal of caution over rapid currency appreciation.

Despite trade tensions, slow growth, low interest rates, and declining foreign investment, the yuan is on track for its best annual performance since the pandemic year of 2020.

Gold prices rose in European trading on Thursday, resuming gains after a two-day pause and moving back toward a six-week high. The metal is drawing support from the ongoing decline in the US dollar, which remains under pressure as expectations grow for an interest-rate cut by the Federal Reserve next week.

To reassess those expectations, investors are awaiting more key US economic data, particularly Friday’s release of the Personal Consumption Expenditures report.

Price Overview

• Gold prices today: Gold rose 0.35% to $4,216.90, up from the opening level of $4,202.58, after touching an intraday low of $4,175.06.

• At Tuesday’s settlement, gold fell 0.1%, marking a second straight daily loss amid continued profit-taking from the six-week high of $4,264.60 per ounce.

US Dollar

The US Dollar Index fell 0.1% on Thursday, extending its decline for a ninth consecutive session and hitting a five-week low of 98.80 points, reflecting persistent weakness in the currency against a basket of major currencies.

The latest drop follows weak economic data and cautious comments from Federal Reserve officials, both of which have boosted expectations of a December rate cut.

US Interest Rates

• US private-sector payrolls recorded their largest monthly decline in more than two and a half years in November.

• After the data, CME’s FedWatch tool showed the probability of a 25-basis-point rate cut in December rising from 87% to 89%, while the likelihood of no change fell from 13% to 11%.

• Investors are monitoring incoming data closely ahead of next week’s decision, with weekly jobless claims scheduled for release today and the PCE report due on Friday.

Gold Outlook

Sonia Komari, commodities strategist at ANZ, said that with investors cautious ahead of the FOMC meeting, the market largely expects a 25-basis-point rate cut. “What the market needs now is a fresh catalyst for another leg higher in gold,” she noted.

Komari added that profit-taking remains present, and any pullback toward $4,000 is likely to attract renewed buying, given the strong underlying support for the precious metal.

SPDR Gold Trust

Holdings at SPDR Gold Trust, the world’s largest gold-backed ETF, fell by 1.72 metric tons on Wednesday, marking a second consecutive daily decline and bringing total holdings down to 1,046.58 metric tons.

The euro declined in European trading on Thursday against a basket of global currencies, marking its first drop in four sessions against the US dollar and pulling back from a seven-week high as traders moved to take profits and initiate corrective positioning.

Fresh data from the euro area showed an expansion in business activity in November, signaling accelerating growth in the fourth quarter. This improvement has strengthened market confidence in the region’s ability to exit its period of economic weakness and may pave the way for a more hawkish stance from the European Central Bank in upcoming meetings.

Price Overview

• EUR/USD fell by 0.152% to 1.1653, down from today’s opening level of 1.1671, after hitting an intraday high of 1.1674.

• The euro ended Wednesday’s session up 0.4% against the dollar, its third straight daily gain, and touched a seven-week high at 1.1678 following strong European data and weaker US figures.

Business Activity Expands

Data released on Wednesday showed eurozone business activity growing at its fastest pace in two and a half years in November, as strength in the services sector offset relative softness in manufacturing.

Analyst Commentary

• Steve Englander, head of global G10 FX research at Standard Chartered in New York, said the market is beginning to take note of the steady stream of stronger European data.

• Englander added that optimism surrounding a potential end to the Russia-Ukraine war is supporting gains in several European currencies, particularly the euro and the British pound.

Christine Lagarde

During a session before the European Parliament’s Economic and Monetary Affairs Committee, ECB President Christine Lagarde said on Wednesday that the eurozone economy is showing signs of recovery. Household spending is rising and the labor market remains resilient, providing support for economic activity despite ongoing challenges.

Lagarde noted that underlying inflation indicators remain aligned with the ECB’s medium-term target of 2%, and she expects inflation to stay near that level in the coming months.

European Interest Rates

• Data released this week showed an unexpected rise in headline inflation in the eurozone during November, highlighting persistent price pressures facing the ECB.

• Following the inflation report, market pricing for a 25-basis-point ECB rate cut in December fell sharply from 25% to just 5%.

• Sources told Reuters that the ECB is likely to keep rates unchanged at its December meeting.

• Investors are now awaiting further economic data from the eurozone ahead of the 17–18 December policy meeting, which will be key in recalibrating rate expectations.

The Australian dollar rose in European trading on Thursday against a basket of major currencies, extending gains for a third consecutive session against the US dollar and reaching its highest level in five weeks, as buying momentum strengthened amid fading expectations that the Reserve Bank of Australia will cut interest rates at next week’s policy meeting.

Market expectations for stronger economic performance in Australia during the fourth quarter have grown, alongside a renewed acceleration in prices and an uptick in inflation — factors that increase pressure on policymakers at the RBA and support a more hawkish policy stance to counter resurgent inflation and maintain price stability.

Price Overview

• AUD/USD climbed 0.2% to 0.6615, the highest since 29 October, up from today’s opening level of 0.6601, after touching an intraday low of 0.6599.

• The Australian dollar ended Wednesday’s session up 0.55% against the US dollar, marking its second consecutive gain amid improving risk appetite across global markets.

Australian Interest Rates

• Recent data from Australia showed a decline in unemployment and an increase in new jobs in October, highlighting ongoing tight conditions in the labor market.

• These figures strengthened expectations of improving economic activity in the fourth quarter, coinciding with a renewed rise in inflation and price pressures.

• As a result, the likelihood of an RBA rate cut at next week’s final meeting of the year has diminished significantly.

• Market pricing currently places the probability of a 25-basis-point rate cut in December at just 10%.