Dollar on track for weekly gains on lower rate cut expectations

The dollar is on track for its best weekly performance in more than a month on Friday, supported by expectations that the Federal Reserve will cut interest rates less and by speculation that Donald Trump’s policies could stoke inflation when he takes office in January.

The dollar is hovering near a one-year high against a basket of currencies at 106.88 and is on track for a weekly gain of 1.8%, its best performance since September.

The euro is on track for its worst weekly performance in seven months, down 1.75%. The single European currency was last at $1.0530, remaining close to a one-year low hit in the previous session.

Sterling fell 0.02% to $1.2666 and was headed for a weekly loss of 2%, its biggest weekly decline since January 2023.

Fed Chairman Jerome Powell said on Thursday that the Fed did not need to rush to cut interest rates, citing continued economic growth and a strong labor market.

Traders reacted to his comments by reducing their bets on the pace and size of rate cuts. According to the CME FedWatch tool, bets on a 25 basis point rate cut next month have fallen to just 48.3% from 82.5% a day earlier.