The US dollar was steady on Friday, but remained on track to post a third consecutive weekly decline, weighed down by expectations of interest rate cuts next year, while the British pound was little changed after data showed the UK economy contracted unexpectedly in the three months through October.

The dollar index—which measures the US currency against six major peers—held at 98.34 points, heading for a weekly decline of 0.64%. The index has now fallen more than 9% year-to-date, on course for its largest annual drop since 2017.

Amid dollar weakness, the euro rose to trade at $1.1737 after gaining 0.37% on Thursday, when it climbed to its highest level in more than two months. Sterling also edged up to $1.3383, hovering near a seven-week high hit on Thursday, supported by economic data that reinforced expectations of a Bank of England rate cut.

Both European currencies are on track to post a third straight weekly gain against the dollar.

Uncertainty over Fed policy next year

The Federal Reserve cut interest rates this week as expected, but comments from Chair Jerome Powell and the accompanying statement were less hawkish than investors had anticipated, reinforcing dollar selling pressure.

“The US dollar is stabilizing after the post-Fed selloff, but it remains under pressure from rate cut expectations and seasonal factors,” said Frantisek Taborsky, currency strategist at ING.

Investors are facing significant uncertainty over the path of US monetary policy next year, as inflation trends and labor market strength remain unclear. Markets are currently pricing in two rate cuts in 2026, compared with policymakers’ projections of one cut next year and another in 2027.

The policy outlook will depend on upcoming economic data, which has been delayed by the impact of the 43-day federal government shutdown in October and November. This comes as the United States heads toward midterm elections, expected to focus heavily on economic performance, amid calls from President Donald Trump for deeper interest rate cuts.

Markets are also closely watching who will succeed Powell as Fed chair and how that transition could affect growing concerns over central bank independence under the Trump administration.

UK economic setback

Sterling dipped slightly after data showed UK gross domestic product contracted by 0.1% in the three months from August to October, compared with expectations for a flat reading in a Reuters poll of economists.

“It is not entirely clear at this stage whether the recent weakness points to an underlying slowdown, or reflects reduced spending ahead of the budget announcement, and to what extent these moves are temporary,” said Philip Shaw, chief economist at Investec.

Finance Minister Rachel Reeves delivered a tax-raising budget on November 26.

The data strengthened bets that the Bank of England will cut interest rates next week, although such a move had already been largely priced in by markets for several weeks.

Yen and franc ahead of central bank meetings

The Japanese yen weakened by 0.2% to 155.87 per dollar ahead of the Bank of Japan’s meeting next week, where expectations broadly point to a rate hike. Markets are focused on policymakers’ guidance regarding the interest rate path in 2026.

Reuters reported that the Bank of Japan is likely to maintain its commitment to further rate increases, while stressing that the pace of future hikes will depend on how the economy responds to each move.

Meanwhile, the Swiss franc was steady at 0.7951 per dollar, after rising on Thursday to its strongest level in about a month. The Swiss National Bank has kept interest rates at 0%, saying a recent agreement to reduce US tariffs on Swiss goods had improved the economic outlook, even as inflation has come in below expectations.

Gold prices fell in European trading on Friday for the first time in the past four days, retreating from a seven-week high, amid corrective moves and profit-taking, in addition to pressure from the rebound of the US dollar against a basket of global currencies.

Despite the pullback, the precious metal, gold, is set to record a weekly gain, supported by the outcome of the Federal Reserve’s monetary policy meeting, which came less hawkish than markets had expected.

Price overview

• Gold prices today: Gold prices declined by around 0.4% to $4,264.77, from an opening level of $4,280.46, while recording a session high at $4,282.44.

• At Thursday’s settlement, gold prices rose by 1.25%, marking a third consecutive daily gain, and reached a seven-week high at $4,285.93 per ounce, supported by a weaker US dollar following soft US weekly jobless claims data.

US dollar

The US dollar index rose by around 0.1% on Friday, recovering from a two-month low of 98.13 points, reflecting a rebound in the US currency against a basket of major and secondary currencies.

Beyond bargain buying from lower levels, the dollar’s recovery comes as investors await clearer and stronger evidence on the path of US interest rates in 2026.

Weekly performance

Over the course of this week’s trading, which officially concludes at today’s settlement, gold prices are up by around 1.7%, on track for a second weekly gain over the past three weeks.

Federal Reserve

• In line with expectations, the Federal Reserve decided on Wednesday to cut interest rates by 25 basis points, bringing them to 3.75%, the lowest level since September 2022, marking the third consecutive US rate cut.

• The decision was not unanimous, as 9 members voted in favor of the cut, while 3 opposed it. Two members preferred to keep rates unchanged, while one member pushed for a larger 50 basis point cut.

• In its monetary policy statement, the Federal Reserve said that available indicators suggest economic activity is expanding at a moderate pace, job gains have slowed this year, and the unemployment rate has edged higher through September.

• The world’s largest central bank also confirmed that recent US economic indicators are consistent with these developments, noting that inflation remains somewhat elevated.

• The Federal Reserve kept its target interest rate projection at 3.75% for this year, 3.5% for 2026, and 3.25% for 2027.

• Federal Reserve Chair Jerome Powell said on Wednesday that a majority of Fed members supported the 25 basis point rate cut, adding that the focus is now on achieving price stability and maximum employment.

• Powell also said he does not expect interest rate hikes to be the base-case scenario going forward, stressing that the Fed is well positioned to determine the timing and extent of any additional adjustments based on incoming data and the evolving balance of risks.

US interest rates

• According to the CME FedWatch tool, pricing for the probability of keeping US interest rates unchanged at the January 2026 meeting is currently stable at 76%, while pricing for a 25 basis point rate cut stands at 24%.

• To reprice these probabilities, investors are closely monitoring further US economic data releases, in addition to comments from Federal Reserve officials.

Gold outlook

ANZ commodity strategist Soni Kumari said that gold remains in a very positive position, noting that investors are taking cues from the fact that the market is still pricing in two US interest rate cuts next year, even though the Federal Reserve’s dot plot pointed to only one cut.

SPDR

Gold holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose by around 4.01 metric tons on Thursday, lifting total holdings to 1,050.83 metric tons, the highest level since October 22.

The euro edged lower in European trading on Friday against a basket of global currencies, retreating from a two-month high versus the US dollar, amid corrective moves and profit-taking, alongside attempts by the US currency to recover from low levels.

The single European currency, the euro, is on track to record a third consecutive weekly gain, supported by strong demand as one of the most attractive investment opportunities in the foreign exchange market, particularly after the narrowing of the interest rate gap between Europe and the United States.

European Central Bank President Christine Lagarde praised the recent improvement in economic activity across the euro area, and hinted at the possibility of raising growth forecasts at the upcoming monetary policy meeting next week.

Price overview

• Euro exchange rate today: The euro slipped by about 0.1% against the dollar to $1.1731, from an opening level of $1.1738, while it recorded a session high at $1.1746.

• The euro ended Thursday’s trading up by around 0.4% against the dollar, marking a second consecutive daily gain, and posted a two-month high at $1.1763, following weak US labor market data.

US dollar

The US dollar index rose by around 0.1% on Friday, recovering from a two-month low of 98.13 points, reflecting a rebound in the US currency against a basket of major and minor currencies.

Beyond bargain buying at lower levels, the dollar’s recovery comes as investors await stronger and clearer evidence regarding the path of US interest rates in 2026.

According to the CME FedWatch tool, pricing for the probability of keeping US interest rates unchanged at the January 2026 meeting currently stands at 76%, while pricing for a 25 basis point rate cut is stable at 24%.

Weekly performance

Over the course of this week’s trading, which officially concludes at today’s settlement, the single European currency, the euro, is up by around 0.8% against the US dollar, on track for a third straight weekly gain.

Christine Lagarde

European Central Bank President Christine Lagarde said on Wednesday that the euro area economy is showing clear resilience in the face of trade tensions, and that growth momentum is now approaching its potential level, which could prompt the ECB to raise its growth forecasts at the upcoming monetary policy meeting next week.

Lagarde added, during an event organized by the Financial Times, that in the latest round of economic projections, estimates were revised higher, and she expects this could happen again in December. She also pointed to improving confidence indicators, particularly in the business and manufacturing sectors, as well as employment data reflecting continued economic resilience.

Lagarde reaffirmed that monetary policy is “in a good place,” which investors interpret as a signal that there is no need for any adjustment to interest rates.

European interest rates

• Money market pricing for the probability of a 25 basis point interest rate cut by the European Central Bank in December is currently stable below 10%.

• Sources told Reuters that the European Central Bank is likely to keep interest rates unchanged at its December meeting.

Interest rate gap

Following this week’s Federal Reserve decision, the interest rate gap between Europe and the United States narrowed to 160 basis points in favor of US rates, the smallest gap since May 2022, which supports further gains in the euro against the US dollar.

The Japanese yen declined in Asian trading on Friday against a basket of major and minor currencies, on track for its first loss in three days against the US dollar, amid improving risk appetite across global financial markets and softer demand for the Japanese currency as a safe haven.

The Bank of Japan is set to meet next week, and markets widely expect a 25 basis point interest rate hike. Investors are closely watching remarks from Governor Kazuo Ueda for clearer signals on the direction of monetary policy in 2026.

Price overview

• Japanese yen exchange rate today: The US dollar rose against the yen by about 0.15% to 155.77, from an opening level of 155.58, while the session’s low was recorded at 155.45.

• The yen ended Thursday’s trading up around 0.3% against the dollar, marking a second consecutive daily gain, supported by US dollar selling following a less hawkish Federal Reserve meeting.

Global markets

US equity markets on Wall Street recorded fresh record highs in a broadly positive environment, particularly after the Federal Reserve implemented its third consecutive cut in US interest rates.

The Fed also announced it will begin purchasing short-term government securities starting December 12, aiming to manage liquidity levels in the market, with an initial round of roughly $40 billion in Treasury bills.

This comes in addition to around $15 billion that the Federal Reserve will reinvest into Treasuries starting this month from maturing mortgage-backed securities.

US dollar

The US dollar index rose by about 0.1% on Friday, rebounding from a two-month low of 98.13 points, reflecting a recovery in the US currency against a basket of global currencies.

Beyond bargain buying at lower levels, the dollar’s rebound comes as investors await clearer and stronger signals regarding the path of US interest rates in 2026.

Bank of Japan

The Bank of Japan will hold its policy meeting next week amid strong expectations of a 25 basis point rate hike to a range of 0.75%, the highest level since 2008 at the onset of the global financial crisis.

Markets are closely monitoring Governor Kazuo Ueda’s comments on the outlook for monetary policy in 2026, at a time when expectations are rising that the Japanese government may resort to further expansionary fiscal measures, adding complexity to the policy landscape facing the Bank of Japan.

Japanese interest rates

• Following recent inflation and wage data in Japan, market pricing for a quarter-point interest rate hike by the Bank of Japan at its December meeting has stabilized above 80%.

• Bank of Japan Governor Kazuo Ueda presented a more optimistic outlook for the Japanese economy last week, stating that the central bank will assess the pros and cons of raising interest rates at its next policy meeting.

• Three government officials told Reuters that the Bank of Japan is likely to raise interest rates later this December.