By Chibuike Oguh
NEW YORK (Reuters) -The U.S. dollar pulled back from a two-year high on Friday, but was heading for its third-straight week of gains, with data showing a slowdown in inflation two days after the Federal Reserve cut interest rates and indicated inflation was stubborn enough to scale back cuts in 2025.
The dollar was down 0.72% against a basket of six other currencies at 107.64 after spiking as high as 108.54 – its highest level since November 2022. It was set to end the week 0.72% higher.
Commerce Department data showed the personal consumption expenditures price index – the Fed’s preferred inflation gauge – rose 0.1% in November after an unrevised 0.2% gain in October.
But in the 12 months through November, the PCE price index advanced 2.4%, compared with a 2.3% increase in the year to October.
The Fed cut interest rates by 25 basis points on Wednesday, with officials indicating that fewer cuts were coming in 2025 as inflation remained above the targeted range despite its recent downward trajectory.
The yield on benchmark U.S. 10-year notes fell 6.2 basis points to 4.51%, after hitting a 6-1/2-month high following the Fed’s rate decision.
“The inflation numbers today were more benign than feared; the Fed tilted its focus back towards inflation in this week’s meeting, and then the numbers weren’t so worrisome,” said Adam Button, chief currency analyst at ForexLive.
“I think the market heard the words of the Fed and got worried about inflation. But then the numbers show that it’s still slowing and certainly not at worrisome levels.
The U.S. government will begin a partial shutdown if Congress does not extend a deadline for a spending bill backed by President-elect Donald Trump to pass by midnight on Friday. The bill failed to pass in the House of Representatives on Thursday.
The dollar weakened 0.79% to 0.892 Swiss francs, on track for a weekly loss.
The euro edged higher after dipping to a one-month low of $1.03435 on the session, on track for its third-straight week of losses, weighed down partly by Trump’s comments that the European Union must purchase more U.S. oil and gas to make up for its “tremendous deficit” with the world’s largest economy, or face tariffs. It was last up 0.76% at $1.044175.
The dollar dropped to a five-month low of 157.93 Japanese yen after the Bank of Japan left interest rates unchanged. It was last down 0.89% at 156.01 yen.
Sterling dipped to a one-month low of $1.2475 but was last up 0.77% at $1.25990, still on track for a third straight week of losses. The Bank of England kept interest rates on hold on Thursday.
The dollar weakened 0.18% to 7.295 Chinese yuan on the offshore market. The Australian dollar weakened 0.43% to $0.6263, while New Zealand’s dollar strengthened 0.53% to $0.566.
“You basically have an interest rate play between Wednesday’s Fed meeting and it’s not so much what they did, but the catalyst was the change in the economic projections for the Fed funds rate next year,” said Joseph Trevisani, senior analyst at FXStreet.com.
“The market is seeing that the Fed is pulling back. I’ve long thought they would pause in January. I’m pretty sure they will.”
Currency bid prices at 20 December 06:57 p.m. GMT
Description RIC Last U.S. Close Previous Session Pct Change YTD Pct High Bid Low Bid
Dollar index 107.66 108.43 -0.7% 6.20% 108.54 107.58
Euro/Dollar 1.0438 1.0364 0.72% -5.43% $1.0445 $1.0344
Dollar/Yen 156.09 157.335 -0.77% 10.69% 157.875 155.975
Euro/Yen 162.93 163.13 -0.12% 4.69% 163.66 162.36
Dollar/Swiss 0.892 0.8987 -0.76% 5.97% 0.899 0.8917
Sterling/Dollar 1.2595 1.2503 0.76% -1.01% $1.2613 $1.2475
Dollar/Canadian 1.4361 1.4399 -0.25% 8.35% 1.4435 1.4336
Aussie/Dollar 0.6263 0.6238 0.46% -8.1% $0.6274 $0.6215
Euro/Swiss 0.9308 0.9312 -0.04% 0.24% 0.9319 0.9287
Euro/Sterling 0.8284 0.8287 -0.04% -4.43% 0.8313 0.8272
NZ Dollar/Dollar 0.566 0.5631 0.55% -10.4% $0.5672 0.5615
Dollar/Norway 11.3073 11.4263 -1.04% 11.57% 11.4726 11.3077
Euro/Norway 11.8051 11.856 -0.43% 5.18% 11.892 11.8072
Dollar/Sweden 11.0032 11.0238 -0.19% 9.3% 11.0608 10.9884
Euro/Sweden 11.4869 11.4283 0.51% 3.25% 11.4929 11.431
(Reporting by Chibuike Oguh, Karen Brettell, Rae Wee and Greta Rosen Fondahn; Editing by Jacqueline Wong, Jamie Freed, Hugh Lawson, William Maclean, Kevin Liffey and Rod Nickel)
