The US dollar is rising against the euro amid speculation about Fed rate cuts

The dollar gained against the euro and was roughly flat against the yen on Friday as stocks recovered from a sharp sell-off and traders weighed whether the Federal Reserve is likely to cut interest rates in December. A flood of data that was postponed during the federal government shutdown awaits publication starting next week. Risk sentiment has been dented by concerns about high stock valuations and Fed policy, but the S&P 500 and Nasdaq Composite stock indexes recovered on Friday. The dollar was weakened Thursday even as stocks fell and Treasury yields rose. More Fed officials have signaled caution about further easing, citing concerns about inflation. Fed Funds futures estimate only a 41% chance of a 25 basis point cut in December.

RETURN OF DATA THAT INCREASES VOLATILITY

Markets are “disjointed because of the lack of data and people’s reactions to the Fed speakers,” said Lou Brien, a strategist at DRW Trading in Chicago. The return of US data is likely to increase market volatility, which has ebbed in its absence in recent weeks. The Commerce Department’s Bureau of Economic Analysis said Friday it was updating its schedule of economic data affected by the recently ended government shutdown. Bank of America currency strategists Adarsh ​​Sinha and Claudio Piron note that volatility has also declined as interest rate spread volatility hit a new low, driven by some central banks, including the European Central Bank, nearing the end of their easing cycle.

Now “we expect the volatility of the interest rate differential (and therefore the currency) to increase as the US data returns, not to mention significant uncertainty around the (Bank of England) and (Bank of Japan) interest rate path,” they said.

The dollar index, which measures the greenback against a basket of currencies including the yen and euro, rose 0.07% to 99.31, while the euro fell 0.12% to $1.1617.

Against the Japanese yen, the dollar weakened 0.02% to 154.52. The pound tumbled against both the dollar and the euro after media reports, including from Reuters, that British Prime Minister Keir Starmer and Chancellor of the Exchequer Rachel Reeves have abandoned plans to raise income tax rates, marking a sharp shift just weeks before the Nov. 26 budget.

The British currency last fell 0.24% to $1.3158. The euro reached its highest rate against the pound since April 2023.Against the Swiss franc, the dollar rose 0.15% to 0.794. Earlier, the price weakened to a one-month low of 0.7876 as traders rushed to the safe haven of the Swiss currency. The Swiss government also said Friday that the United States will cut tariffs on goods from Switzerland to 15% from a crippling 39% under a new framework trade deal.

In cryptocurrencies, bitcoin fell 3.41% to $95,433, the lowest since May.