The dollar recorded its best weekly performance in more than a month on Friday, supported by expectations of an interest rate cut by the Federal Reserve and a view that Donald Trump’s policies may increase inflation when he takes office in January.
The dollar hovered near a one-year high against a basket of currencies at 106.81 and was looking for a weekly gain of 1.76%, which would represent its best performance since September.
Federal Reserve Chairman Jerome Powell said Thursday that the central bank does not need to rush to cut interest rates, citing continued economic growth, a strong labor market and steady inflation as reasons to be wary of easing policy too quickly.
Traders reacted by scaling back bets on the pace and size of future US interest rate cuts, with Fed funds futures now pointing to an easing of just 71 basis points by the end of 2025.
Pricing for a 25 basis point rate cut next month also fell to just 48.3% from 82.5% a day ago, according to the CME FedWatch tool.
Higher trade tariffs and tightening immigration under the incoming President-elect Trump administration are expected to fuel inflation, which could slow the Fed’s easing cycle in the long run.
Expectations of increased deficit spending are also lifting US Treasury yields, providing the dollar with additional support.
