The dollar was set for its steepest weekly drop against major currencies since July, weighed by growing prospects of U.S. rate cuts next year, while the euro and pound found support on Friday as central banks in Europe stuck to their hawkish paths.
The spotlight will now switch to Bank of Japan's meeting next week with the central bank likely to end the year as one of the world's most dovish as expectations of the BOJ to exit its ultra loose monetary policy fade.
In an action-packed week for central banks, traders found more clarity on when interest rate cuts were likely after Federal Reserve Chair Jerome Powell said at Wednesday's meeting that the tightening of monetary policy is likely over, with a discussion of cuts coming "into view".
That has resulted in the greenback sliding against rivals, with the dollar index at 102.01, not far from the four-month low of 101.76 it touched on Thursday. The index is down nearly 2% and set for its steepest weekly decline since July.
Markets are now pricing in a 75% chance of a rate cut in March by the Fed, according to CME FedWatch tool.
They are also pricing in 150 basis points in rate reductions by December 2024, double the Fed's projections that implied 75 basis points of cuts next year.
On Thursday, the European Central Bank and Bank of England took a different path to the Fed, pushing back against bets on imminent cuts to interest rates and reiterating their focus on the fight against inflation, helping lift the euro and pound.
Still, investor expectations have not been tempered with rate cuts priced in for next year.
The ECB has more scope than most to ease, according to Pepperstone's Weston, given low growth and a rapid decline in inflation.
The euro was at $1.0985, just shy of $1.1009, a two-week high it touched on Thursday. The currency is up 2% this week, its largest rise since July.
Sterling was last at $1.2766, having surged 1.1% and scaling a four-month peak of $1.2793 on Thursday after BoE's hawkish tilt.
Meanwhile, the Japanese yen strengthened 0.11% to 141.70 per dollar, having surged 0.7% and touched a four-and-a-half month high of 140.95 on Thursday.
Source : Reuters
