The U.S. dollar was on track for its steepest weekly decline in four months on Thursday as investors shifted positions in anticipation of further monetary easing.
Market expectations have increasingly reflected the view that the Federal Reserve may need to cut interest rates sooner rather than later.
Traders were also responding to political pressure from President Donald Trump, who has continued to call for rate reductions.
The holiday schedule added further complexity.
With U.S. markets closed for Thanksgiving, liquidity was thin, creating conditions where price swings became more pronounced.
The weaker dollar environment drew attention in Asia.
The Japanese yen edged 0.11% higher to 156.27 per dollar, supported by a more assertive tone from Bank of Japan policymakers, who recently hinted at a less accommodative stance.
Analysts suggested Japan may see this environment as an opportunity to stabilise currency volatility.
“That could be an attractive environment for Japanese authorities to intervene in dollar/yen,” said Francesco Pesole, forex strategist at ING.
However, Pesole added that intervention might still depend on a major U.S. data release that pushes the dollar lower, noting that “the stall in the pair may have removed some sense of urgency.”
Shifting Rate Outlook Pressures the Greenback
The U.S. dollar index rose 0.1% to 99.65 on Thursday, but that move did little to offset the broader weekly decline.
The index is still down 0.54% for the week after retreating from a six-month high reached just a week earlier.
The changing interest-rate outlook has created uncertainty among currency strategists.
Mark Haefele, chief investment officer at UBS Global Wealth Management, urged investors to reassess their positioning, warning that the U.S. dollar’s appeal was waning.
He recommended shifting exposure toward the euro and Australian dollar.
Political considerations have also become intertwined with monetary expectations.
Traders noted that if White House economic adviser Kevin Hassett — a vocal supporter of rate cuts — were appointed as the next Federal Reserve chair, it would likely act as a negative catalyst for the dollar.
Views on the longer-term direction remain mixed.
“We’ve gone through a period where rate differentials and euro growth expectations clearly benefited Europe over the U.S.,” said Themos Fiotakis, global head of forex strategy at Barclays.
Fiotakis added that “looking ahead, some of those assumptions are being challenged,” pointing to both the euro’s relatively high valuation and the sustained strength of the U.S. economy.
Euro and Swiss Franc React to Geopolitical Developments
The euro slipped 0.13% to $1.1581 after reaching a one-and-a-half-week high earlier at $1.1613.
Investors were watching diplomatic developments related to efforts toward a possible Ukraine peace arrangement.
U.S. envoy Steve Witkoff is expected to visit Moscow next week, but Russian officials signaled that no major concessions should be expected.
Expectations of progress in talks initially supported the euro.
However, analysts warned that instability in the region remains high, and markets have yet to see signs of a clear “peace dividend.”
The Swiss franc, a traditional geopolitical safe haven, also moved modestly.
The dollar touched a one-week low against the franc at 0.8028 before recovering to 0.8060.
Aussie and Kiwi Strengthen on Policy Trends
The New Zealand dollar strengthened to a three-week high of $0.5728.
The move extended gains from a day earlier, when the Reserve Bank of New Zealand cut interest rates but signaled that a pause had been debated and that the easing cycle was likely complete.
With strong domestic economic data released on Thursday, markets are now pricing in a rate hike by December 2026.
The outlook differs sharply from expectations for the Federal Reserve, where more than 90 basis points of cuts are priced in through the end of next year.
The Australian dollar also tracked higher, benefiting from risk sentiment and expectations of diverging interest-rate paths.
