FOREX-Dollar hovers near five-week low on Fed rate cut bets

The dollar dropped 0.3% to 154.46 yen, the lowest since November 17. BOJ officials are ready to raise rates on December 19, in the absence of any major economic shocks, Bloomberg reported on Friday, a day after Reuters reported three sources as saying a hike this month was likely.

The U.S. dollar languished not far from a five-week low against its major peers on Friday as investors braced for a Federal Reserve rate cut next week. The greenback was particularly weak against the yen, with the Japanese currency buoyed to a nearly three-week high by expectations that the Bank of Japan will resume its rate hike campaign later this month.

Markets widely expect a quarter-point U.S. rate reduction when the policy-setting Federal Open Market Committee meets on December 9-10, and a focus will be on any signals about how much additional easing lies ahead. The dollar index, which measures the currency against six rivals, fell 0.2% to 98.929 as of 0623 GMT, heading back towards Thursday's five-week low of 98.765. The index is poised for a 0.6% decline this week.

Traders are pricing around 86% odds of a Fed cut next Wednesday, and potentially 2-3 more reductions next year, LSEG data showed. Fed officials have been carefully watching the labour market to determine whether the economy needs further support.

Data overnight showed the number of Americans filing new applications for unemployment benefits fell to a more than three-year low last week, but may have been skewed by the Thanksgiving holiday. The data picture remains incomplete following the record-long government shutdown delayed some releases and prevented other data from ever being collected.

Crucial monthly payrolls figures would ordinarily be published later on Friday, but have been delayed until mid-December, and the previous month's numbers were never released. Instead, one of the Fed's preferred inflation gauges - the PCE deflator - will be published later on Friday, although the data is for September. Economists surveyed by LSEG expect a 0.2% monthly increase in the core number.

"An increase of 0.2% per month or below will encourage the FOMC to cut the Funds rate next week in our view," Commonwealth Bank of Australia currency strategist Carol Kong wrote in a client note. "Our analysis suggests the risk is a soft increase in core PCE inflation of only 0.1%."

The dollar has come under additional pressure in recent days with investors also weighing the prospect of White House economic adviser Kevin Hassett taking over as Fed Chair after Jerome Powell's term ends in May. Hassett is expected to push for more rate cuts. The dollar dropped 0.3% to 154.46 yen, the lowest since November 17.

BOJ officials are ready to raise rates on December 19, in the absence of any major economic shocks, Bloomberg reported on Friday, a day after Reuters reported three sources as saying a hike this month was likely. The euro gained 0.1% to $1.1659, heading back towards Thursday's three-week high of $1.1682.

Sterling added 0.2% to $1.33505, approaching the previous session's six-week peak of $1.3385. Next week sees a parade of central bank policy decisions, with the Reserve Bank of Australia's coming on Tuesday, the Bank of Canada's on Wednesday and the Swiss National Bank's on Thursday.

That continues the following week with the BOJ, European Central Bank, Bank of England, and Sweden's Riksbank. The Aussie advanced 0.3% to $0.6626, a more than two-month high.

The Swiss franc gained 0.1% to 0.8026 per dollar after dropping back sharply from Wednesday's two-week high of 0.7992 in the previous session.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)