The US dollar registered gains against the euro while maintaining stability against the Japanese yen on Friday, as financial markets witnessed stock recovery following recent declines. Traders carefully evaluated the diminishing likelihood of a Federal Reserve interest rate cut in December, with current pricing indicating only a 41% probability.
Market Recovery and Fed Policy Assessment
Equity markets demonstrated resilience as the S&P 500 and Nasdaq Composite indexes rebounded from previous sessions' sharp declines. This recovery occurred despite ongoing concerns about elevated stock valuations and uncertainty surrounding Federal Reserve monetary policy. The dollar's Thursday weakening, which coincided with falling stocks and rising Treasury yields, appeared to reverse during Friday's trading session.
Multiple Federal Reserve officials have recently expressed caution regarding additional monetary easing, highlighting persistent inflation worries as a primary concern. This hawkish sentiment from central bank representatives has significantly influenced market expectations, with fed funds futures now pricing in merely a 41% chance of a 25-basis-point reduction in December.
Economic Data Resumption and Volatility Outlook
The impending release of previously delayed economic data, resulting from the recent federal government shutdown, is anticipated to reintroduce market volatility. Lou Brien, strategist at DRW Trading in Chicago, noted that markets have become "disjointed because of the lack of data and the people reacting to the Fed speakers."
The Commerce Department's Bureau of Economic Analysis confirmed on Friday that it is working to update its schedule of economic data releases affected by the recently concluded government shutdown. This development comes as Bank of America foreign exchange strategists Adarsh Sinha and Claudio Piron observed that volatility has declined recently as interest rate differential volatility reached fresh lows, partly driven by central banks like the European Central Bank approaching the end of their easing cycles.
Now, "we expect rate differential (and therefore FX) volatility to rise as US data releases resume, not to mention the considerable uncertainty around the rate paths of the (Bank of England) and (Bank of Japan)," the strategists emphasized.
Currency Performance and Global Developments
The dollar index, which measures the greenback against a basket of currencies including the yen and euro, increased by 0.07% to reach 99.31. The euro declined by 0.12% to $1.1617, while the dollar weakened marginally by 0.02% against the Japanese yen, settling at 154.52.
The British pound experienced significant declines against both the dollar and euro following media reports, including from Reuters, indicating that British Prime Minister Keir Starmer and Finance Minister Rachel Reeves have abandoned plans to raise income tax rates. This policy reversal comes just weeks ahead of the November 26 budget announcement. The pound sterling finished down 0.24% at $1.3158, while the euro reached its highest rate against the pound since April 2023.
Against the Swiss franc, the dollar strengthened by 0.15% to 0.794, recovering from an earlier one-month low of 0.7876 as traders initially sought refuge in the safe-haven currency. In a positive development for Swiss trade, the Swiss government announced that the United States will reduce its tariffs on goods from Switzerland to 15% from the previous burdensome rate of 39% under a new framework trade agreement.
In cryptocurrency markets, bitcoin declined by 3.41% to $95,433, marking its lowest value since May, reflecting ongoing volatility in digital asset markets amid broader financial market uncertainty.
