The U.S. dollar is on track for its third straight weekly decline, weighed down by expectations that the Federal Reserve may cut interest rates next year. This shift boosted both the euro and the British pound to their highest levels since October.
In early Asian trading on Friday, the euro held steady at $1.1741 after gaining 0.37% the day before. The British pound also inched higher to $1.33955. Both currencies are set for their third week of gains as the dollar continues to weaken.
The Fed cut interest rates this week as expected, but investors felt the overall message — including comments from Fed Chair Jerome Powell — wasn’t as strong or as hawkish as markets had predicted. That pushed more traders toward selling the dollar.
But uncertainty remains. No one is fully sure how the Fed will move next year, with inflation and the strength of the U.S. labor market still unclear. Traders are currently expecting two rate cuts in 2026, while Fed policymakers expect one cut next year and another in 2027.
Christina Clifton, a currency analyst at Commonwealth Bank of Australia, said concerns about the U.S. job market could push the Fed to cut rates even more. “We expect three reductions in 2026,” she added.
The dollar index, which tracks the U.S. currency against six major currencies, stood at 98.34 and is heading for a 0.7% weekly drop. The index has now fallen more than 9% this year, putting it on course for its biggest yearly decline since 2017.
The Japanese yen also got a boost from the weaker dollar. It reached 155.61 per dollar, set to break a two-week losing streak ahead of next week’s Bank of Japan meeting, where an interest rate hike is widely expected.
The Australian dollar stayed steady at $0.6667, while the New Zealand dollar climbed 0.14% to $0.5815.
The Swiss franc strengthened to 0.7942 per dollar after Switzerland’s central bank kept its interest rate at 0%, saying the newly reached deal to reduce U.S. tariffs on Swiss goods has improved the country’s economic outlook.
