Dollar Slips Ahead of Key PCE Data; Fed Cut Odds Fuel Euro and Sterling Rally

AsianForexHub Market Pulse

• The potential for a Fed rate cut next week remains high (86% odds), driving the Dollar Index to a five-week low.
• Market focus shifts to the September PCE Deflator release due to the delay in monthly payrolls data.
• EUR/USD and GBP/USD trade near multi-week highs, supported by strong German industrial orders and post-budget sentiment.
• USD/JPY slipped as renewed speculation suggests the Bank of Japan may raise rates in December.
• Analysts suggest that the selection of Kevin Hassett as the next Fed Chair could contribute to a more dovish outlook for the dollar.

The U.S. dollar drifted lower Friday, adding to recent weakness ahead of key inflation data as the case grows for a rate cut from the Federal Reserve next week.

Anticipate the next major move in EUR/USD and GBP/USD as global policy paths diverge.

Dollar Weakness Persists as Fed Cut Bets Hold

At 04:10 ET (09:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 98.872, on course for a weekly loss of around 0.5%, hovering near a five-week low.

The U.S. dollar has been on the slide as traders position for a Federal Reserve rate cut next week, with recent data showing weakness in the key labor market. Traders are pricing around 86% odds of a Fed cut next Wednesday, and potentially 2-3 more reductions next year, LSEG data showed.

Instead of the usual monthly payrolls release, which has been delayed until after the Fed meeting, the focus Friday will be on one of the Fed’s preferred inflation gauges—the PCE deflator—even though the data is for September.

Traders are also looking to see if U.S. President Donald Trump will appoint White House economic adviser Kevin Hassett to succeed Jerome Powell as head of the Federal Reserve early next year. Analysts at ING noted, “For the big dollar, it remains slightly offered on the view that the Fed will cut rates next week and that the arrival of Kevin Hassett as Fed Chair will somehow make the Fed more dovish.”

Euro and Sterling Gain Momentum

In Europe, EUR/USD rose 0.1% to 1.1654, heading back towards Thursday’s three-week high of 1.1682. The movement follows better-than-expected German industrial orders, which rose by 1.5% in October, surpassing the expected 0.4% gain. The final release of third-quarter growth in the eurozone is due later, expected to confirm annual gross domestic product growth of 1.4%. ING analysts suggest a slight bias that EUR/USD trades to 1.1700/1730 and continues to find support in the 1.1630/40 area.

GBP/USD gained 0.1% to 1.3348, approaching the previous session’s six-week peak of 1.3385. Sterling has seen demand in the wake of the previous week’s annual budget, even as data has shown difficult economic conditions. U.K. house prices held steady in November, showing no monthly change, according to the latest Halifax House Price Index.

Asia: Yen Rallies on BOJ Speculation

In Asia, USD/JPY slipped 0.2% to 154.74, amid renewed expectations that the Bank of Japan could raise rates in December. A Reuters report said the government was increasingly open to a move, while comments from Governor Kazuo Ueda were interpreted as less dovish, reinforcing speculation. Meanwhile, AUD/USD gained 0.3% to 0.6634, on course for weekly gains of around 1.3% after data showing signs of economic strength.

Track the PCE Deflator release live and assess how this key inflation gauge might influence the Fed’s dovish shift.