Euro and Pound Strengthen as Dollar Weakens
SINGAPORE – The U.S. dollar appears set for a third consecutive week of losses, with the euro and pound reaching their highest levels since October. This shift is largely attributed to the recent indications of potential interest rate cuts next year, which have put pressure on the dollar after the Federal Reserve did not align with market expectations for a hawkish stance.
The euro was trading at $1.1738, up by 0.37% from the previous day, while the pound stood firm at $1.3395. Both currencies are on track to see gains for the third week in a row amidst a weakening dollar.
Although the Fed did cut interest rates as anticipated this week, comments from Fed Chairman Jerome Powell were seen as less aggressive than many investors expected, prompting a wave of dollar selling.
“I think concerns about the U.S. labor market will influence the FOMC to implement more rate cuts in 2026,” stated Christina Clifton, a senior currency strategist at the Commonwealth Bank of Australia. “We’re estimating three cuts next year, bringing the fund rate down to a range of 2.75%-3.0%.”
There seems to be a divide between traders and policymakers regarding future U.S. monetary policy, creating a sense of uncertainty. Policymakers are suggesting just one cut next year, with another in 2027, whereas traders are leaning toward anticipating two cuts in 2026.
Kieran Williams, head of Asian FX at InTouch Capital Markets, expressed skepticism about the Fed’s “long-term high interest rate” projections. He noted that historical trends indicate that the Fed often follows two-year Treasury yields rather than setting its course independently.
“If the growth data keeps trending downward, the Fed might have to accommodate a more dovish market view, which could further undermine the dollar,” he added.
The trajectory of U.S. monetary policy will depend significantly on economic data, which might still be lagging due to the impact of the recent federal government shutdown. This is particularly relevant as the midterm election year approaches, with President Trump pushing for more substantial rate cuts.
Market participants are also watching closely to see who will become the next Fed chair, as concerns over the central bank’s independence have surfaced during the Trump administration.
The dollar index, a measure of the U.S. currency against six major rivals, stood at 98.36, indicating a projected weekly decline of about 0.7%. This index has dropped over 9% throughout the year, marking the most significant annual decline since 2017.
The Japanese yen weakened slightly to 155.76 against the dollar. Expectations are high for a rise in interest rates during the upcoming Bank of Japan meeting, with market focus shifting to policymakers’ insights regarding Japan’s interest rate direction in 2026.
The Australian dollar held steady at $0.6667, and the New Zealand dollar increased by 0.14% to $0.5815 as investors tried to reconcile different interest rate trajectories, anticipating that upcoming domestic rate movements could swing upward.
In other markets, the Swiss franc rose to 0.7942 per U.S. dollar during Asian trading hours, following solid overnight activity. The Swiss National Bank maintained its policy rate at 0% and noted an improved economic outlook after a recent agreement to reduce U.S. tariffs on Swiss products, despite inflation figures being somewhat lower than expectations.
Emerging market currencies also saw strength against the dollar, with the Malaysian ringgit climbing to a four-year high.
