US Dollar Declines as Euro and Pound Gain Strength

The US dollar is on track for a third consecutive week of losses as of Friday, with the euro and pound climbing to their highest values since October. This comes after the US Federal Reserve’s decision to dismiss market expectations for aggressive rate cuts next year.

The pound held steady at $1.1741 during early Asian trading, following a 0.37% increase in the previous session. Meanwhile, the euro was also slightly stable at $1.33955. Both currencies are set to continue rising as the pressure on the dollar remains persistent.

This week, the Fed did cut interest rates as anticipated, but Chairman Jerome Powell’s statements seemed to be less hawkish than what investors had expected, thereby fueling further selling of the dollar.

Anthony Saglimbene, the chief market strategist at Ameriprise, mentioned that it’s still unclear if the Fed’s “predictable message” will actually lead to more gains as the year wraps up. He suggested that the central bank’s avoidance of negative surprises might help investors steer clear of problematic situations come December.

There is ongoing uncertainty surrounding US monetary policy for next year. With inflation trends and labor market robustness still up in the air, policymakers forecast just one rate cut in the upcoming year and another in 2027, while traders are anticipating two cuts in 2026.

“I think concerns about the US labor market could drive the FOMC to consider further rate cuts next year,” said Christina Clifton, a senior currency strategist at the Commonwealth Bank of Australia. “We expect three cuts in 2026, which would bring the fund rate down to around 2.75-3.0%.”

The trajectory of monetary policy will hinge on future economic data, which is still feeling the effects of the recent 43-day federal shutdown. This uncertainty looms over an upcoming midterm election year where economic performance will likely take center stage, especially with the former President making calls for deeper rate cuts.

The market is also curious about who will be the next Fed chair and how that might shape concerns regarding the Fed’s independence, which have intensified during the previous administration.

The dollar index, which gauges the US currency against six major competitors, was at 98.34, poised to drop by 0.7% for the week. It’s noteworthy that the index has plummeted over 9% this year—marking the steepest decline since 2017.

In other moves, the dollar against the yen is looking to capitalize on the weak dollar as it ends a two-week losing streak, trading at 155.61 just ahead of an expected interest rate hike from the Bank of Japan next week.

Additionally, the Swiss Franc saw a rise against the dollar, reaching 0.7942 during Asian trading hours, thanks to a promising economic outlook for Swiss exports, despite inflation being slightly lower than anticipated.