Investing.com – The U.S. dollar edged lower on Friday but maintained a strong weekly performance, driven by expectations of a better performance from the U.S. economy and fewer interest rate cuts from the Federal Reserve this year.
The greenback, which tracks its strength against a basket of six other currencies, was last down 0.3% at 108.900, retreating from hitting its highest level in more than two years 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 consider a more hawkish Federal Reserve and a resilient U.S. economy.
U.S. manufacturing activity data for December, as determined by , was stronger than expected on Thursday, with a more widely watched version of the Institute for Supply Management’s version of the situation scheduled for later in the session.
It appears to have cooled slightly to 48.2 last month, down from a five-month high of 48.4 in November. The figure has remained below the 50-point threshold for the eighth straight month, although it remained above the 42.5 level, which the ISM says signals broader economic expansion.
Markets are also looking forward to an important monthly jobs report late next week, and the next Federal Reserve meeting is also scheduled for this month.
“Markets are fully expecting a January hold,” analysts at ING said in a note. “If the dot plot acts as a benchmark for interest rate expectations over the next three months, the bar is set higher for surprising data that seriously threatens the dollar’s large interest rate lead.”
Euro rebounds but faces big weekly decline
In Europe, it rose 0.4% to 0.0042, a slight rebound after falling nearly 1% in the previous session to its lowest level in more than two years.
Data released on Friday showed a smaller-than-expected rise in job losses in December, which helped the single currency.
But the euro is still on track for a weekly decline of about 1.5%, its worst since November in the euro zone after data released Thursday morning showed it had fallen at a faster pace in late 2024.
Traders had expected more rate cuts starting in 2025, with markets pricing in at least 100 basis points of easing.
It traded up 0.3% at 1.2422 after falling more than 1% on Thursday and is expected to fall about 1.4% this week.
Interest rates have been unchanged since consumer prices rose above target last month and traders expect the Bank of England to cut them by around 60bps in 2025.
Yuan falls on PBOC interest rate cut report
In Asia, it rose 0.8% to 7.3587, taking the pair to its highest level since September 2023.
The Financial Times reports that the PBOC will cut interest rates further in 2025 as the central bank shifts to a more traditional monetary policy structure under a single benchmark rate.
The monetary policy reforms come as numerous liquidity measures over the past two years have largely failed to stimulate the Chinese economy.
It was down 0.1% at 157.31 after hitting a more than five-month high in late December, helped by the Bank of Japan’s largely dovish outlook for 2025.
