Dollar Near Five-Week Low As Fed Cut Bets Grow

The US dollar hovered near a five-week low on Friday as traders priced in a high chance of a Fed rate cut next week. Markets put roughly under a 90 percent chance of a 25 basis-point cut at the December meeting, lifting risk assets and pressuring the greenback. The rupee recovered to 89.97 after hitting a record low of 90.42 to the dollar, supported by state bank dollar sales and some corporate inflows.

At the same time, gold held steady as a rise in US Treasury yields offset the weak dollar, and investors awaited PCE inflation data for fresh Fed clues. What should investors watch next as these moves unfold?

How Strong Is The Market’s View On Rate Cuts?

The dollar index sat near 99.065, close to a five-week low reached earlier in the session. Traders have pushed the odds of a quarter-point Fed cut at the December meeting to roughly 85–90 percent based on market pricing. This shift comes after recent economic data showed slower inflation pressures and mixed job-market signals. Lower expected US rates reduce demand for safe-haven dollar assets and often lift other currencies.

Markets will now turn their attention to the U.S. personal consumption expenditures gauge. If the PCE number shows cooler inflation, the case for a Fed cut strengthens and the dollar may weaken further. If PCE surprises to the upside, some of the recent dollar weakness could reverse quickly. In this environment, the next few data releases will matter more than the headlines.

Will The Central Bank Hold The Line Before The MPC?

The rupee on Thursday firmed and closed above 90 after state banks sold dollars and some corporates converted their foreign-currency receipts. Analysts said the Reserve Bank of India likely stepped in to prevent a sharper fall ahead of the upcoming Monetary Policy Committee (MPC) meeting.

Key indicators to watch include daily FII flows, one-month forward premia, and foreign currency reserves. Rising forward premia signal higher hedging costs for importers and traders. If the RBI continues to intervene in the spot and forward markets, the rupee could stabilise. However, any sudden change in external flows or trade-related developments may still push volatility higher.

Which Way Will Bullion Move?

Gold prices held steady despite dollar weakness because US Treasury yields edged higher on some safe-asset buying and positioning ahead of US data. Spot gold traded near recent levels around US$4,203.89 an ounce at 8.47 am today, while U.S. futures showed only small moves as traders awaited the PCE release. Higher yields raise the opportunity cost of holding non-yielding assets like gold, which can blunt the metal’s gains from a weaker dollar.

Watch three things for bullion direction. First, the PCE inflation print. Cooler inflation supports rate cuts and can boost gold. Second, US 10-year yields rose. A sharp rise in yields can weigh on gold even if the dollar is weak. Third, flows into gold ETFs. Net inflows signal investor demand beyond currency moves and can sustain prices. With these cross-currents, bullion may trade in a narrow range until the Fed gives clearer guidance.

The interplay of Fed expectations, rupee moves, and US inflation data will shape markets early next week. Will the PCE print confirm a path to rate cuts and keep the dollar weak, or will yields and data surprises shift the balance and revive dollar strength?

References

Reuters
CBS
Economic Times
CME Group
Reuters
The Business Times