A Bloomberg gauge for the dollar is headed for its worst week since June, and US Treasury bonds are rising as traders await data due early next month to confirm expectations of further Federal Reserve interest rate cuts in 2026.
With trading subdued due to the holiday this week and markets in the UK closed on Friday, investors' attention is largely focused on key US economic reports expected in the first few weeks of January. The December jobs report and consumer inflation figures, in particular, will help determine the Fed's next move after officials lowered borrowing costs this month for the third consecutive time to support growth.
The Bloomberg Dollar Spot Index fell slightly on Friday and is down about 0.8% this week. The index has fallen about 8% this year, which would be its steepest annual decline since 2017. It is also poised for its lowest close since September. Risk-sensitive currencies such as the Australian dollar and the Norwegian krone led gains against the US dollar this week among other major currencies.
"Liquidity has been thin this week, and that hasn't helped the dollar, which was already in a relatively weak position," said Andrew Hazlett, a foreign exchange trader at Monex Inc. "Looking ahead, our focus will be on inflation figures as a guide to the next Fed rate cut."
The dollar's decline coincided with a rise in US Treasury bonds, with the 10-year US Treasury yield falling about three basis points this week to 4.12%, within the range of the past few weeks. Traders see about a 90% chance that the Fed will keep rates unchanged next month. But they are betting on another quarter-point cut by mid-year, and another a few months later.
US unemployment data released this month showed the unemployment rate rose to its highest level since 2021, while consumer inflation data showed lower-than-expected figures.
Traders have raised expectations for US currency weakness for five consecutive days, with a key options indicator now at its most bearish level against the US dollar in more than three months. (alg)
Source: Bloomberg
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