The USD continued to weaken in the session on Friday, marking a series of three consecutive declines, as global investors bet that the US Federal Reserve (Fed) will soon enter a new interest rate cutting cycle. The Fed's "aunt and daughter" signal has lifted the Euro and British pound to their highest level since October.
The Euro rose 0.37% in the previous session, trading at $1.1738, while the British fund held steady at $1.3395 - all on the rise for three consecutive weeks. The continued weakness of the greenback has become a catalyst for the recovery of other major currencies.
The Fed cut interest rates by 0.25 percentage points this week as expected, but Chairman Jerome Powell's speech took a more dovish tone than expected, strengthening the psychology of selling off the USD.
We believe that concerns about the labor market will be a key factor driving the Fed to continue cutting interest rates next year, Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia, said. She forecasts three cuts in 2026, bringing the federal funds rate to 2.75 - 3.0%.
Investors are currently facing great uncertainty surrounding the Fed's policy path, as inflation and jobs remain fluctuating. The market is pricing in two interest rate cuts in 2026, contrary to the cautious view of policymakers, who expect only one cut in 2026 and another in 2027.
Mr. Kieran Williams - Head of Asian foreign exchange at InTouch Capital Markets - commented that the market "has good reasons to doubt the dot-plot chart to maintain high interest rates" of the Fed. According to him, historical data shows that the Fed often follows the yield on two-year bonds, not takes it lead.
If growth continues to slow, the Fed will be forced to move in a more dovish market direction which could weaken the USD, Williams said.
US monetary policy in the coming time will depend heavily on economic data laden by the 43-day government shutdown in October and November. The US is also entering the midterm election year, with President Donald Trump publicly calling on the Fed to cut interest rates aggressively to boost growth.
In addition, the market is paying special attention to the personnel to succeed the Fed Chairman - a factor that can shape the independence of central banks in the context of increasingly sensitive politics.
The Dollar Index - a measure of the strength of the greenback against six major currencies - stood at 98.36 points, heading for a 0.7% decline for the week and has lost more than 9% since the beginning of the year, on the strongest decline since 2017.
In Asia, the Japanese yen is trading around 155.76 JPY/USD ahead of the Bank of Japan (BOJ) meeting next week, where the majority of investors are predicting a rate hike. The focus will be on the announcement of the 2026 interest rate orientation.
The Australian dollar moved sideways at $0.6667, while the New Zealand dollar rose slightly by 0.14% to $0.5815, in the context of two economies pursuing a mixed monetary policy - Australia could increase interest rates while other countries continue to ease.
In Europe, the Swiss francs increased to 0.7942 USD in the Asia session, after the Swiss National Bank (SNB) kept interest rates at 0%. The SNB said the agreement to reduce tariffs on goods with the US has improved economic prospects, although inflation is still lower than expected.
