The US dollar index retreated on Friday, trading near its lowest level in five weeks ahead of a delayed US inflation reading that is not expected to alter market expectations for a Federal Reserve rate cut next week.

The dollar weakened notably against the Japanese yen, which drew support from expectations that the Bank of Japan will raise interest rates this month, pushing the yen to its strongest level in nearly three weeks.

The dollar index, which measures the currency against six major peers, slipped 0.1% to 98.981, moving toward Thursday’s low of 98.765.

The Personal Consumption Expenditures (PCE) index — one of the Fed’s preferred inflation gauges — is set for release later on Friday, though it reflects September data. Analysts at LSEG expect a 0.2% rise in the core reading.

The data is unlikely to alter expectations for a 25 basis-point rate cut at the Fed’s December 9–10 FOMC meeting, with market focus instead turning to any guidance on the broader easing cycle.

LSEG data shows traders pricing an 86% chance of a rate cut next week, with the potential for two additional cuts next year.

Investors are also assessing the possibility that Kevin Hassett, the White House economic adviser, could succeed Jerome Powell as Fed chair when Powell’s term ends in May. Hassett is expected to advocate deeper rate cuts.

Chris Turner, head of global markets at ING, said: “The dollar continues to trade without strong buying pressure as markets look toward next week’s rate cut, and as expectations grow that a Hassett-led Fed could lean more dovish.”

The US labor market remains central to investor attention, given its implications for how much support the Fed may deem necessary for the economy.

Data released Thursday night showed new unemployment claims falling to their lowest level in more than three years, though the numbers may have been distorted by the Thanksgiving holiday.

The broader economic picture remains incomplete following the prolonged government shutdown, which delayed some reports and prevented the collection of others.

The monthly US jobs report was originally scheduled for release this Friday, but has been postponed until mid-December, and last month’s figures were never published.

Yen rises as Bank of Japan prepares for a potential rate hike

In currency markets, the dollar dipped 0.12% to ¥154.92 after touching its lowest level since November 17.

Bloomberg reported Friday that Bank of Japan officials are prepared to raise rates on December 19 if no major economic shocks occur, following a Reuters report earlier in the week suggesting a December hike is likely.

The euro climbed 0.1% to $1.1651, heading toward Thursday’s three-week high of $1.1682.

The British pound rose 0.15% to $1.3346, nearing the six-week peak of $1.3385 reached in the previous session.

Next week brings a cluster of central bank meetings: the Reserve Bank of Australia on Tuesday, the Bank of Canada on Wednesday, and the Swiss National Bank on Thursday. These will be followed the week after by meetings of the Bank of Japan, European Central Bank, Bank of England, and Sweden’s Riksbank.

The Australian dollar gained 0.3% to $0.6626 after touching its highest level in more than two months.

The Swiss franc edged up 0.1% to 0.8029 per dollar after sharply retreating in the previous session from a two-week high of 0.7992.

Gold prices rose in European trading on Friday, moving into positive territory for a second consecutive session, supported by the current weakness in the US dollar against a basket of global currencies as markets price in a high probability of a Federal Reserve rate cut next week.

To reprice those expectations, investors are awaiting the long-delayed US Personal Consumption Expenditures report later today, which had been postponed due to the government shutdown.

The PCE report is the Federal Reserve’s preferred inflation gauge.

Price Overview

• Gold today: Prices rose by 0.55% to $4230.81, from an opening at $4207.44, after touching a low of $4194.85.

• On Thursday, gold settled up 0.1%, resuming gains after a two-day pause caused by profit-taking from the six-week high at $4264.60 per ounce.

US Dollar

The dollar index declined on Friday by 0.25%, resuming losses after a brief pause yesterday and moving close to a five-week low, reflecting continued weakness in the US currency against major global peers.

US Interest Rates

• A stream of weak US economic data continues, particularly regarding job openings in the world’s largest economy.

• Fed officials, including New York Fed President John Williams and Governor Christopher Waller, signaled that easing policy in December may be justified given labor-market weakness.

• Kevin Hassett — now the leading candidate to replace Jerome Powell — stated that interest rates should be lower.

• According to CME’s FedWatch tool, markets currently price an 87% probability of a 25 basis-point rate cut in December, with a 13% chance of no change.

• To reprice these expectations, investors await today’s release of the September PCE report, a key inflation measure closely watched by the Federal Reserve.

Gold Outlook

Kelvin Wong, market analyst for Asia-Pacific at Oanda, said sellers were unable to push gold above Monday’s peak at $4264.60, while the market shows signs of caution ahead of the PCE release.

He added that this pivotal data is pushing short-term traders toward a more defensive stance in adding long positions, with dollar weakness now offering support to gold.

SPDR Holdings

Holdings at SPDR Gold Trust, the world’s largest gold-backed ETF, rose on Thursday by 4.00 metric tons to 1,050.58 metric tons — the highest level since October 22.

The euro rose in European trading on Friday against a basket of global currencies, resuming the gains that paused yesterday against the US dollar. The currency is now approaching a seven-week high and heading toward a second consecutive weekly advance.

This week’s data from the eurozone showed a clear expansion in business activity during November, signaling an acceleration in economic growth through the fourth quarter. The improvement in Europe’s outlook is boosting market confidence in the region’s ability to exit its phase of economic weakness and is paving the way for potentially more hawkish decisions from the European Central Bank in upcoming meetings.

Price Overview

• EUR/USD Today: The euro climbed 0.1% to 1.1656, from an opening at 1.1644, after touching a low of 1.1674.

• The euro ended yesterday down 0.25% against the dollar — its first loss in four days — as investors booked profits following a run-up to a six-week high at 1.1682 earlier in the session.

Weekly Trading

So far this week — which concludes with today’s settlement — the euro is up more than 0.5% against the US dollar, putting it on track to achieve a second straight weekly gain.

Positive Data

Wednesday’s figures showed eurozone business activity rising at its fastest pace in two and a half years during November, with a strong services sector offsetting relative weakness in manufacturing.

Views and Analysis

Steve Englander, head of global FX research at Standard Chartered in New York, said: “We’ve been seeing this gradual improvement in Europe’s data, and I think the market is finally starting to take notice.”

He added that optimism over a potential end to the Russia–Ukraine war is also supporting gains in many European currencies, particularly the euro and the British pound.

Christine Lagarde

In a session before the European Parliament’s Committee on Economic and Monetary Affairs, ECB President Christine Lagarde said on Wednesday that Europe’s economy is showing signs of recovery: household spending has increased, and the labor market remains resilient — both contributing to improved activity despite ongoing challenges.

Lagarde emphasized that core inflation indicators remain aligned with the ECB’s 2% medium-term target and is expected to stay near that level in the coming months.

European Interest Rates

• This week’s data showed an unexpected rise in headline inflation across the eurozone for November, highlighting persistent price pressures for the ECB.

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

• Reuters sources indicated the ECB is likely to hold rates steady in its December meeting.

• Investors await additional eurozone economic data ahead of the December 17–18 meeting to reassess these expectations.

The Japanese yen rose in Asian trading on Friday against a basket of major and minor currencies, extending gains for a third consecutive session against the US dollar. The currency is now trading near a two-week high and is on track to secure another weekly gain — its largest weekly advance since September — supported by growing expectations of an interest-rate hike in Japan later this month.

More hawkish remarks from Bank of Japan Governor Kazuo Ueda opened the door to near-term policy normalization, coinciding with Reuters reports citing government sources that the central bank is likely to raise rates in December.

Price Overview

• USD/JPY Today: The dollar fell about 0.2% against the yen to 154.80¥, from an opening level of 155.05, after touching a high of 155.23.

• The yen ended Thursday up 0.1% against the dollar, marking a second straight daily gain and reaching a two-week high of 154.51, supported by hopes that the interest-rate gap between Japan and the US will narrow.

Weekly Trading

So far this week — which concludes with today’s settlement — the Japanese yen is up roughly 0.85% against the US dollar, on track for a second consecutive weekly gain and its strongest weekly performance since late September.

Kazuo Ueda

On Monday, BOJ Governor Kazuo Ueda offered a more optimistic outlook for Japan’s economy, saying the central bank will weigh the pros and cons of raising interest rates at its upcoming December policy meeting.

Japanese Finance Minister Satsuki Katayama said on Friday, in response to a question on monetary policy: since taking office in October, communication with Governor Ueda has been very strong. She added that the specifics of monetary operations fall strictly under the BOJ’s authority.

Views and Analysis

Christopher Wong, FX strategist at OCBC, said: “This looks like pre-positioning for a possible rate hike. A December or January move now seems highly plausible.”

He added: “The key question is whether this will be a one-and-done increase followed by another long pause. A sustained recovery in the yen will likely require stronger forward guidance from the BOJ.”

Japanese Interest Rates

• Reuters sources said the BOJ is preparing markets for a potential rate hike in December, returning to a more hawkish tone as concerns about the yen’s sharp decline re-emerge and political pressure to keep rates low fades.

• Three government officials told Reuters the BOJ will *likely* raise interest rates this month.

• Market pricing currently assigns roughly a 70% probability of a 25-basis-point rate hike at the December meeting.

• To refine these expectations, investors are awaiting further Japanese data on inflation, unemployment, and wage growth.