The USD decreased slightly in the trading session on Thursday, after a series of weak economic data reinforced expectations that the US Federal Reserve (Fed) will cut interest rates at the upcoming meeting. This development has supported the Japanese Yen's recovery and pushed the Euro to its highest level in nearly seven weeks.
Investors are also closely monitoring the possibility of White House Economic Advisor Kevin Hassett being nominated as Fed Chairman to succeed Jerome Powell, who will retire in May next year. Mr. Hassett is said to have a stronger policy easing stance.
President Donald Trump said he would announce Powell's successor in early 2026, extending the selection process that had been going on for months, although he had previously affirmed that he had "closed the candidate".
According to analysts, Mr. Hassett's appointment could put more pressure on the USD as the bond market fears he will promote a deeper interest rate cut cycle to suit the direction of the White House.
Data from CME FedWatch shows that the market currently rates an 89% chance of a Fed cut of 0.25 percentage points next week, with a total interest rate cut of about 89 basis points by the end of 2026. However, experts are still skeptical about the depth and duration of this easing cycle.
Mr. Thomas Mathews, Head of Asia - Pacific Market Department at Capital Economics, commented: "With the US economic foundation still quite strong, investors may be overestimating the Fed's interest rate cut in the medium term. This will help the USD not fall too much".
The Dollar Index - a measure of the strength of the greenback against a basket of 6 major currencies - is currently at 98.919, near a 5-week low and has lost nearly 9% since the beginning of the year.
Mr. Thierry Wizman, global strategist on foreign exchange and interest rates at Macquarie, said that the combination of positive data from other economies, salary increases in Japan and the prospect of Hassett becoming Fed Chairman contributed to the USD's depreciation, while other currencies all increased simultaneously.
The Euro was stable at 1.1674 USD, after reaching its peak since October 17 in the previous session. New data shows that business activities in the Eurozone have increased the fastest in 30 months, strengthening the recovery momentum. Since the beginning of this year, the Euro has increased by more than 12%, towards the strongest increase since 2017 when benefiting from a weak USD and expectations of the Fed lowering interest rates.
The European Central Bank (ECB) will hold a meeting in the next two weeks. The market is currently pricing in a 25% chance that the ECB will cut interest rates next year.
The Japanese Yen is moving sideways around 155.18 JPY/USD, as concerns about the possibility of the Japanese Ministry of Finance's intervention to ease, although the country's government bonds are still under selling pressure due to concerns about taibilities revolving around Prime Minister Sanae Takaichi's large spending plan. Analysts predict that the Bank of Japan (BOJ) may raise interest rates in the next two weeks, after Governor Kazuo Ueda signaled to ease concerns about a weak Yen.
The British pound is trading around 1.3342 USD, near the peak since the end of October. Meanwhile, the Australian and New Zealand dollars are at $0.6607 and $0.5774, respectively, both approaching a monthly high.
