Dollar caps worst week since June with focus on data ahead

(Courtesy: Bloomberg photo)

A Bloomberg gauge of the dollar posted its worst week since June as traders looked to data due early next month to confirm expectations for further Federal Reserve interest-rate cuts in 2026.

With trading subdued because of holidays this week and markets in the UK closed Friday, investors’ attention has largely turned to major economic reports out of the US expected in the first few weeks of January. The December jobs report and consumer inflation readings, in particular, will help chart the Fed’s next steps after officials reduced borrowing costs this month for the third straight meeting to support growth.

The Bloomberg Dollar Spot Index was steady on Friday and fell some 0.8% this week. It has declined around 8% this year, which would be its steepest annual drop since 2017. Risk-sensitive currencies including the Australian dollar and Norway’s krone led gains against the greenback on the week among major peers.

“Liquidity was thin this week, and that didn’t help the dollar, which was already in a relatively weak position,” said Andrew Hazlett, a foreign-exchange trader at Monex Inc. “Looking ahead, our focus is going to be on inflation numbers as guidance for the Fed’s next cut.”

The greenback’s decline has coincided with a dip in Treasury yields, with US 10-year yields falling about two basis points this week to 4.13%, within the range of the past couple of weeks. Traders see about a 90% probability that the Fed will stay put next month. But they’re betting on another quarter-point cut by mid-year, and one more several months later.

US unemployment data released this month showed the jobless rate rising to its highest since 2021, while figures on consumer inflation showed lower-than-expected readings.

Traders have bolstered expectations for a weaker US currency for five days in a row, with a key options gauge now at the most bearish on the greenback in more than three months.