The dollar steadied on Friday after a big overnight drop as growing speculation that the US central bank may soon signal a pause in its three-year rate hiking campaign was offset by concerns that global growth is slowing. US Federal Reserve Chairman Jerome Powell said last week that US interest rates were nearing neutral levels, which markets interpreted as signalling a slowdown in rate rises.
Those hopes received a fresh boost overnight after the Wall Street Journal reported Fed officials were considering whether to signal a wait-and-see attitude after a likely rate increase at their meeting on Dec. 18-19. The US dollar was broadly flat against a basket of its rivals at 96.83. However, on a weekly basis, the dollar was set for its biggest drop in more than two months
"While there are growing expectations the dollar is about to roll over next year, we still think that is a story for the second quarter or until we get further evidence that other major central banks are getting ready to raise interest rates further," said Alvin Tan, a currency strategist at Societe Generale in London.
If the Fed raises interest rates as expected at its December session, it would be the fourth hike this year and investors are waiting to see how much further the tightening cycle has to run. Interest rate futures imply traders see less than one rate increase from the Fed in 2019, compared with previous expectations for possibly two rate hikes, according to money markets.
Another factor impeding the dollar's advance has been falling US yields, which have been chipping away at the yield differential advantage the greenback enjoyed earlier this year. The benchmark US 10-year Treasury yield was last at 2.896 percent after dipping overnight to its lowest level since late August, with the yield gap between 10-year maturities in US and British government whittled down to 162 basis points from 174 a month earlier.
"The guidance going forward will be key to yields and equity market moves, which right now foreign exchange markets seem to be reacting to," said Bart Wakabayashi, Tokyo branch manager at State Street Bank. On Friday, the dollar was steady against the euro at $1.1371. Against the Japanese yen, it tacked on 0.1 percent to 112.79 yen.
The Australian dollar was flat at $0.7216, not far off a three-week trough of $0.7192 hit on Thursday. But on Friday, the dollar broadly marked time before monthly US jobs data, amid speculation that the US economy is heading for a tough patch after years of solid growth. Economists polled by Reuters forecast jobs rose by 200,000 in November after surging 250,000 in October. The data is due at 1330 GMT.
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