The U.S. dollar remained steady near a five-week low on Thursday, following lackluster economic data that strengthened expectations for a Federal Reserve interest rate cut next week. Meanwhile, the euro surged to a seven-week high, while the yen found temporary relief amid easing intervention concerns.

Investors are also keeping an eye on potential leadership changes at the Federal Reserve, with White House economic adviser Kevin Hassett emerging as a potential successor to Jerome Powell when his term ends in May 2026. Hassett’s expected stance in favor of additional rate cuts could put further pressure on the U.S. dollar.

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Weak U.S. Economic Data Fuels Rate Cut Expectations

Recent U.S. economic reports showed weaker-than-expected performance, reinforcing the market consensus that the Federal Reserve may implement a quarter-point rate cut during its upcoming policy meeting. According to LSEG data, traders are pricing in an 85% probability of a Fed rate reduction next week.

Commerzbank FX analysts Thu Lan Nguyen and Antje Praefcke commented:

“A Fed rate cut next week is already priced in. What will be decisive for the dollar is whether there will be new hints regarding the direction of monetary policy in subsequent meetings.”

The dollar index, which tracks the U.S. currency against six major rivals, was largely unchanged at 98.94, after a nine-day slide. Despite this stabilization, the dollar is down nearly 9% year-to-date, reflecting ongoing pressure from anticipated monetary easing.

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Euro Strengthens as Eurozone Business Activity Expands

The euro edged slightly lower to $1.1657 but remained near its highest point since October 17, following data indicating the fastest expansion in eurozone business activity in 30 months.

Over 2025, the euro has gained more than 12%, poised for its largest annual increase since 2017, buoyed by a combination of a weak dollar and growing expectations of U.S. rate cuts. The European Central Bank (ECB) is set to meet in two weeks, with analysts largely expecting the bank to maintain current rates. Only a 25% chance of easing is priced in for next year.

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Yen Stabilizes Amid Intervention Speculation

The Japanese yen traded at 155.22 per dollar, slightly recovering from last month’s 10-month low, as market concerns about potential intervention by Tokyo authorities eased.

Three government sources familiar with Bank of Japan (BOJ) deliberations indicated that the BOJ is likely to raise rates in December, though the central bank’s long-term rate trajectory remains uncertain.

Chidu Narayanan, head of macro strategy at Wells Fargo APAC, noted:

“A still cautious BOJ, attractive carry for long dollar/yen positions, and persistent pressure on Japanese government bond yields could keep the yen under pressure.”

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Other Currency Movements

• Sterling hovered at $1.3337, near its highest level since October 28.
• The Swedish crown slipped against both the euro and dollar after November’s inflation rate slowed.
• China’s yuan eased slightly but remained near a 14-month high following cautious guidance from the People’s Bank of China. Despite trade tensions, low growth, and minimal foreign investment, the yuan has held firm since the pandemic year of 2020.

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Market Outlook

Analysts suggest that the U.S. dollar may face further downward pressure if the Fed adopts an aggressive easing strategy. However, some experts caution that the strength of the U.S. economy could limit the extent of rate cuts in the medium term.

As investors watch developments surrounding Fed leadership, monetary policy, and global economic indicators, the currency markets are likely to remain volatile in the coming weeks.