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Dollar Poised for Best Week in Months as Fed-Cut Bets Fade - BLOOMBERG
(Bloomberg) -- The dollar is poised for its best week since late-2025 as traders pare expectations for Federal Reserve interest-rate cuts while geopolitical risks boost the currency’s haven appeal.
The Bloomberg Dollar Spot Index is up about 0.8% this week as of mid-morning in New York on Friday, putting it on track for its biggest gain since November.
The gauge was steady after data showed the US economy grew less than expected last quarter, while a monthly measure of underlying inflation rose the most in nearly a year in December, clouding the outlook for Fed easing. A buildup of US forces in the Persian Gulf has also lifted demand for the greenback, while oil held near a six-month high.
“Markets are shifting towards a higher probability of US and Iranian engagement,” said Richard Cochinos, a currency strategist at RBC Capital Markets. “The upward pressure on oil really keeps the euro and the Japanese yen from being seen as a safe haven, so the dollar steps in to fill that void.”
The yen has weakened 1.8% this week to trade around 155.43 per dollar, while the euro is down 0.9% to $1.1767.
Options markets also show a shift in tone, with short-dated positioning turning the most bullish for the greenback since November.
The dollar has been under pressure in recent months as other major central banks held rates steady or signaled hikes, while the Fed was seen delivering further cuts — a view bolstered by President Donald Trump’s nomination of Kevin Warsh to become the next Fed chair. Uncertainty over US trade policy also weighed on the greenback, which saw its biggest drop in eight years in 2025.
Wary Fed
Minutes from the Fed’s latest meeting, however, revealed that officials were surprisingly wary of cutting rates when they met last month, with several suggesting the central bank may need to eventually raise borrowing costs if inflation remains stubbornly high. Traders are now pricing in about 55 basis points of cuts for this year — at least two quarter-point reductions — compared to 63 basis points at the end of last week.
“The emphasis will now shift from the labor market back to the inflation readings,” wrote Chris Turner, head of foreign-exchange strategy at ING Bank NV.
Strength in US economic data may force bearish investors to unwind their bets, potentially adding more fuel to the dollar’s run. Speculative traders added to short dollar bets last week, becoming the most negative on the greenback since June, data from the Commodity Futures Trading Commission show. The latest report from the CFTC is expected on Friday.
Inflation-adjusted gross domestic product increased an annualized 1.4% in the fourth quarter after rising 4.4% in the prior period, according to the government’s initial estimate out Friday. Overall, the economy expanded 2.2% last year.
