The U.S. dollar weakened on Thursday after disappointing economic data reinforced expectations of an imminent rate cut by the Federal Reserve, providing support to the yen and pushing the euro to its highest level in nearly seven weeks.
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Investors are also factoring in the possibility that White House economic adviser Kevin Hassett could be appointed Fed Chair following Jerome Powell’s term ending in May. Hassett is anticipated to favor additional rate cuts, a move that analysts warn could weigh on the dollar. President Donald Trump said he will announce his choice early next year, extending a months-long selection process.
Traders currently assign an 89% probability of a 25-basis-point Fed rate cut next week, with cumulative easing projected at 89 basis points by the end of 2026, according to CME FedWatch. Some analysts, however, remain skeptical about the pace and depth of the Fed’s potential easing cycle given the underlying strength of the U.S. economy.
“The market may be overestimating how far the Fed will cut in the medium term,” said Thomas Mathews, head of Asia-Pacific markets at Capital Economics. “That may keep the dollar from falling too far.”
Still, the dollar index, which tracks the currency against six major rivals, stood at 98.919, near a five-week low, and has dropped nearly 9% year-to-date. Thierry Wizman, global FX strategist at Macquarie, said stronger-than-expected data abroad, signals of wage growth in Japan, and the prospect of a Hassett-led Fed have collectively supported other currencies at the dollar’s expense.
The euro traded at $1.1674 in Asian hours, after climbing to its highest since October 17, supported by data showing eurozone business activity expanded at the fastest pace in 30 months in November. The euro is up over 12% this year, on track for its largest annual gain since 2017, benefiting from earlier U.S. dollar weakness and rising expectations of Fed rate cuts. The European Central Bank is widely expected to maintain rates at its upcoming meeting in two weeks.
The Japanese yen held steady at 155.18 per dollar, as market concerns over potential Tokyo intervention eased, even amid bond market pressure stemming from Prime Minister Sanae Takaichi’s expansive spending plan. Traders are increasingly anticipating a possible rate hike by the Bank of Japan following comments from Governor Kazuo Ueda.
Elsewhere, sterling traded at $1.33425, near a high not seen since October 28. The Australian dollar was at $0.66075, and the New Zealand dollar at $0.5774, both approaching their strongest levels in over a month.
