Dollar Weaker Against Counterparts Ahead of Fed Decision

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As worries over the state of the American economy returned on Friday, the dollar (USD) dipped against a basket of foreign currencies ahead of a Federal Reserve meeting on interest rates next week.

Investors are anticipating rate decisions from the Fed, the European Central Bank (ECB), and the Bank of England (BoE) next week after a break in market-moving news.

Markets anticipate that all three will gradually boost interest rates—with an average increase of 0.5 percentage points—while continuing to strive to contain inflation.

In a note to investors, currency experts at MUFG said that as markets begin to factor in the possibility of a peak in interest rates early next year, volatility levels for major currencies have fallen back around their long-run average.

Meanwhile, data released on Thursday revealed a slight increase in US unemployment claims, which made investors more anxious about the future.

Dollar Index Still Up 9.5% YTD

The dollar index (DXY), which compares the value of the dollar to a basket of six top currencies, fell 0.1% to the 104.680 low earlier today.

The index is down more than 6% for the fourth quarter, reflecting weaker forecasts for inflation and interest rates, but is still up over 9.5% for the year as a whole.

According to data from Refinitiv, markets are pricing in a 93% possibility that the Fed will raise its benchmark rate by 50 basis points (bps) at its meeting on December 14 and a 7% chance of a 75 bps point rise.

In other news, the euro (EUR) was steady against the dollar at $1.05580, not far from its six-month high reached earlier this week, and on pace for a third straight week of gains.