The dollar index (DXY00) on Friday fell to a 1-week low and finished down by -0.15%. The dollar moved lower on Friday due to some carryover pressure from Thursday, when a report from Challenger showed US job cuts in October surged by 175% y/y, the most in 22 years, bolstering the outlook for the Fed to keep cutting interest rates. The dollar fell to its lows on Friday after the University of Michigan’s US Nov consumer sentiment index fell more than expected to a nearly 3.5-year low.
The dollar is still under pressure from the ongoing US government shutdown. The longer the shutdown is maintained, the more likely the US economy will suffer and the more likely the Fed will have to cut interest rates.
Losses in the dollar were limited on Friday amid weakness in stocks, which boosted liquidity demand for the dollar. Also, hawkish comments on Friday from Fed Vice Chair Philip Jefferson were supportive of the dollar when he said the Fed should proceed slowly with any additional rate cuts.
The University of Michigan US Nov consumer sentiment index fell -3.3 to a nearly 3.5-year low of 50.3, weaker than expectations of 53.0.
News on inflation expectations was mixed. The University of Michigan US Nov 1-year inflation expectations unexpectedly increased to +4.7%, above expectations of no change at +4.6%. However, the Nov 5-10 year inflation expectations eased to +3.6%, weaker than expectations of +3.8% y/y.
US Sep consumer credit rose by +$13.093 billion, stronger than expectations of +$10.230 billion.
Fed Vice Chair Philip Jefferson said interest rates continue to have a “somewhat restrictive” effect on the economy and “it makes sense to proceed slowly with rate cuts as we approach the neutral rate.”
The markets are discounting a 67% chance that the FOMC will cut the fed funds target range by 25 bp at the next FOMC meeting on December 9-10.
EUR/USD (^EURUSD) rallied to a 1-week high on Friday and finished up by +0.15%. The euro moved higher on Friday due to a weaker dollar. Also, better-than-expected German trade news was supportive for the euro after German Sep exports and imports rose more than expected.
Central bank divergence is supportive of the euro, with the ECB seen as largely finished with its rate-cut cycle, while the Fed is expected to cut rates several more times by the end of 2026.
