US dollar weakens amid Fed rate cut speculation

The US dollar struggled against its rivals yesterday, amid growing speculation of imminent interest rate cuts.

So far, the pound is steady this morning, with GBP/EUR rangebound at €1.1528 and GBP/USD similarly narrow at $1.2807. GBP/CAD is steady at CA$1.6903, while GBP/AUD is rising at AU$1.8734 and GBP/NZD is firming at NZ$2.0210.

Looking ahead, will rising US jobless claims weaken USD?

What’s been happening?

On Wednesday, the US dollar weakened against its peers, owing to an upbeat market mood and a lack of data.

Furthermore, continued bets that the Federal Reserve will cut interest rates in March weighed on the US dollar. CME’s FedWatch tool suggests an 80% likelihood of early cuts in the new year.

The pound, meanwhile, saw mixed trading conditions due to a lull in data releases.

While the bullish market mood served to support GBP somewhat, Bank of England (BoE) interest rate cut expectations capped Sterling.

Elsewhere, the euro saw modest support due to its negative correlation with a flagging US dollar. However, a light data calendar prevented the common currency from capitalising on its advantage.

What’s coming up?

Looking ahead, the latest US initial jobless claims figure is due to print this afternoon.

Economists speculate that claims will have risen in the week ending 23 December, which could weaken the US dollar. If the US labour market shows signs of slowing, USD could struggle to attract support through to the end of the year.

For the pound, data releases are set to remain few and far between. As a result, the market mood is likely to be the main driver of Sterling’s movement.

If the ‘Santa rally’ continues today, GBP exchange rates could strengthen against safer assets such as USD and EUR.

Elsewhere, the continued lack of data is likely to keep the euro restricted. Although, should US jobless claims increase, EUR may rise as USD falters.