The dollar rose 0.03% to 104.44, on track to gain just above 0.1% for the week
The dollar took a breather on Friday, on track to close a volatile week with a slight gain as markets weighed the impact of Donald Trump’s return to the White House and what that would mean for the U.S. economy and its rate outlook.
Beijing concludes its five-day meeting of the Standing Committee of the National People’s Congress later in the day, which investors will be closely watching for more details of China’s stimulus measures that could in turn lift the yuan and Antipodean currencies.
The U.S. currency further unwound some of its sharp gains from earlier in the week as traders closed out profitable bets on a Trump presidency after his election victory.
That helped lift sterling back toward the $1.30 mark, while the yen hovered closer to the 153 per dollar level.
The euro declined 0.07% to $1.0795 and was headed for a 0.35% weekly drop, weighed down by a resurgent dollar and amid a political crisis in Germany, where the coalition led by Chancellor Olaf Scholz collapsed late on Wednesday.
The Federal Reserve on Thursday cut interest rates by 25 bps, but flagged a cautious and patient approach to further easing.
The meeting does not change the view that the Fed is still on the path to reduce rates and another rate cut in December is likely unless the inflation and labour market data surprises materially to the upside, said Kerry Craig, global market strategist at J.P. Morgan Asset Management.
For 2025, however, the picture will be complicated by potential for trade and tax policies to add to the inflation outlook, he said.
The U.S. central bank’s rate trajectory has been clouded by Trump’s election victory as his plans for high tariffs are seen as stoking inflation.
Traders have since reacted to the outcome of the election results by lowering bets on Fed cuts next year.
If the incoming Trump administration does indeed levy significant tariffs or adopt other inflationary policies, then we believe the Fed funds rate may bottom out next year closer to 4% than to 3%, according to Wells Fargo chief economist Jay Bryson.
Sterling last traded $1.2983, recovering from its decline to an almost three-month low earlier in the week.
The pound had rallied 0.8% on Thursday after the BoE lowered interest rates but said it expected UK inflation and growth to pick up more quickly than it had previously anticipated.
The yen declined 0.14% to 153.15 per dollar.
Against other major currencies, the dollar rose 0.03% to 104.44, on track to gain just above 0.1% for the week. It had rallied 1.53% on Wednesday as “Trump trades” picked up strongly.
