During the week ending December 13, the Dollar Index strengthened as currency markets anticipated slower-than-expected reductions in Federal Reserve interest rates for 2025. The dollar appreciated against the euro, British pound, and Japanese yen. It also gained ground against the Australian dollar, Swedish krona, Canadian dollar, and Swiss franc.
The Dollar Index, which gauges the dollar's strength against a basket of key currencies including the euro, British pound, Japanese yen, Canadian dollar, Swedish krona, and Swiss franc, closed at 107.00 on December 13, rising by 0.89% from 106.06 the previous week. Trading fluctuated significantly throughout the week, ranging from a low of 105.80 on Monday to a high of 107.19 on Friday.
According to the U.S. Bureau of Labor Statistics, headline annual inflation climbed as anticipated to 2.7% in November from October's 2.6%. The core inflation rate also held steady at 3.3%, aligning with expectations. Month-on-month inflation increased to 0.3%, up from 0.2% since July, in line with forecasts. The core inflation rate remained stable at 0.3%, matching market predictions.
Further data from the Bureau of Labor Statistics indicated that factory gate prices in the U.S. rose by 0.4% in November on a month-to-month basis, surpassing the revised 0.3% rate from October and doubling the market's forecast of 0.2%.
Meanwhile, data from the U.S. Department of Labor revealed an unexpected rise in initial jobless claims to 242,000 in the first week of December, surpassing the prior week's revised level of 225,000. Market expectations had been for a decrease to 220,000.
With no unexpected outcomes regarding consumer price index figures, market confidence in a quarter-point Fed rate cut in December, reducing the Fed's target rate to between 4.25% and 4.5%, solidified to 96% by Friday, an increase from 85% on Monday.
However, the sharp increase in new jobless claims since October intensified the Federal Reserve's monetary policy challenges, as it navigates the trade-offs between persistent inflation and a weakening labor market. Given the Fed's dual mandate to maintain price stability and achieve maximum employment, the institution appears to be orienting itself towards a more gradual approach to rate cuts in 2025, further supporting the dollar's strength.
Throughout the week ending December 13, the U.S. dollar rose by 0.62% against the euro amid the widely anticipated interest rate reduction by the European Central Bank. The ECB cut its key interest rates by 25 basis points for the fourth time this year. Consequently, the EUR/USD pair fell from 1.0568 on December 6 to 1.0502 on December 13, with the week's trading range spanning a high of 1.0595 on Monday to a low of 1.0453 on Friday.
The British pound dropped by 0.97% against the U.S. dollar during the same week, following data indicating an unexpected 0.1% contraction in the British economy month-over-month in October. Market forecasts had predicted a 0.1% expansion, and this surprising downturn revived expectations of rate cuts from the Bank of England. The GBP/USD pair slipped from 1.2742 to 1.2618 over the week, with trading varying from a high of $1.2800 on Monday to a low of $1.2607 on Friday.
The Australian dollar declined by 0.44% against the U.S. dollar over the week ending December 13, despite the Reserve Bank of Australia maintaining steady rates as expected. The AUD/USD pair decreased from 0.6389 on December 6 to 0.6361 within a week, hitting a high of 0.6473 on Monday and a low of 0.6336 on Wednesday.
The USD/JPY pair surged by 2.41% during the week ending December 13, closing at 153.64 compared to 150.03 a week prior. Trading ranged from a low of 149.69 on Monday to a high of 153.81 on Friday, as market expectations for a Bank of Japan rate hike diminished.
As the Federal Reserve's interest rate decision approaches on Wednesday, the Dollar Index has slightly decreased to 106.97. The euro has marginally slipped to 1.0499. Amid speculation about potential rate easing by the Bank of England to stimulate growth, the pound sterling has risen to $1.2656. In anticipation of the Bank of Japan maintaining steady rates during this week's review, the USD/JPY pair has climbed to 154.06. Meanwhile, the AUD/USD pair has weakened further to 0.6358.
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