The U.S. dollar is slightly higher in early European trade on Friday,but is still on track for its biggest weekly decline since July.
“As the dust settles after a furious period for central bank meetings we are left to conclude that European policymakers have chosen to push back more than the Fed when it comes to what the market prices for 2024 rate cuts,” said analysts at ING, in a note.
The U.S. dollar is slightly higher in early European trade on Friday,but is still on track for its biggest weekly decline since July.
This comes after the Federal Reserve indicated that there may be rate cuts next year, while European central banks have maintained their hawkish stance. The Dollar Index, which measures the dollar against other currencies, is up 0.1% at 101.702, close to its four-month low of 101.459 seen earlier today. The index has fallen over 2% this week.
The dollar has been impacted by the dovish shift in the Fed's stance,while the European Central Bank and the Bank of England have expressed their intention to keep policy tight to combat inflation.
Both central banks kept interest rates unchanged on Thursday, with the ECB stating that policy easing was not even discussed during their meeting. This contrast with the Fed's pivot towards rate cuts means that the dollar will continue to be unfavored as the year ends. Analysts at ING note that European policymakers have chosen to push back more than the Fed in terms of market expectations for rate cuts in 2024.
Later in the session, there will be more U.S. economic data to analyze, including November industrial and manufacturing production, as well as S&P PMI numbers. However, the focus will primarily be on a speech by Fed policymaker John Williams, as the market seeks confirmation that the debate has shifted to the timing of the first rate cut.
If the U.S. central bank reduces interest rates, it could lead to increased inflation. Historical surveys show that since the 1970s, the value of the dollar has decreased by 1% compared to before the Nixon presidency due to excessive printing of banknotes by the central bank.
