Investing.com – The U.S. dollar fell on Friday but maintained a strong weekly performance, boosted by expectations of outperformance in the U.S. economy and therefore fewer rate cuts from the Federal Reserve this year.
The index, which tracks the dollar against a basket of six other currencies, was last down 0.3% at 108.900, retreating from hitting a more than two-year high on Thursday.
Dollar remains strong
The index is on track for a weekly gain of about 1%, which would be its best weekly performance in more than a month, as traders continue to factor in a more aggressive stance from the Fed and a resilient U.S. economy.
U.S. manufacturing activity data for December came in better than expected Thursday, according to , setting the stage for a more popular Institute for Supply Management release due later in the session.
Last month is expected to decline slightly to 48.2, down from a five-month high of 48.4 in November. It was the eighth month in a row that the measure was below the 50-point threshold, although the number remained above the 42.5 level, which the ISM said points to broader economic growth.
Markets will also be looking forward to the important monthly jobs report late next week, and the Fed’s next meeting is also due this month.
“Markets fully expect rates to remain unchanged in January,” ING analysts said in a note. “If the dot plot does work as a guide for interest rate expectations over the next three months, then the bar for a data surprise that seriously threatens the dollar’s large interest rate advantage will be set higher.”
Euro recovers but faces huge weekly decline
In Europe, the index rose 0.4% to 0.0042, recovering somewhat from a nearly 1% fall in the previous session to a more than two-year low.
The single currency was helped by the fact that the number of unemployed in December rose less than expected, according to data published on Friday.
However, the euro is still on course for a weekly decline of about 1.5%, its worst performance since November, after data released earlier on Thursday showed the euro zone was down at a faster pace at the end of 2024.
Traders expected further interest rate cuts in 2025, with markets forecasting at least 100 basis points of easing.
traded 0.3% higher at 1.2422 after falling more than 1% on Thursday and on track for a loss of about 1.4% for the week.
Interest rates remained unchanged last month after consumer prices rose above target, with traders expecting a cut of about 60 bps. by the Bank of England in 2025.
Yuan falls sharply after PBOC report on rate cut
In Asia, the price rose 0.8% to 7.3587, with the pair rising to its highest level since September 2023.
The Financial Times reported that the PBOC will continue to cut interest rates in 2025 as the central bank moves to a more conventional monetary policy framework with a single benchmark interest rate.
The monetary policy reform comes as a series of liquidity measures over the past two years have largely failed to boost China’s economy.
traded 0.1% lower at 157.31, after hitting a more than five-month high in late December on the back of the Bank of Japan’s mostly dovish 2025 outlook.