Title: U.S. Dollar Slips on Fed Rate Cut Bets, Yen and Pound Gain Ground
Originally reported by InvestingLive News Staff – December 1, 2025
(Adapted and expanded for clarity and detail)
On Friday, December 1, the U.S. dollar fell across key currency pairs as investor speculation over a Federal Reserve interest rate cut gained momentum. This came after economic data showed signs of a cooling labor market, reinforcing expectations that monetary easing may start as early as March 2026. Meanwhile, other major currencies, including the Japanese yen and British pound, posted gains on the day, putting further pressure on the greenback.
This article covers the following key developments in the forex market:
– U.S. economic indicators and interest rate expectations
– Movement in the U.S. Dollar Index
– Performance of key currencies including the yen, pound, euro, loonie, and franc
– Central bank remarks and policy implications
– Geopolitical considerations and commodity currency performance
U.S. Economic Data Softens Rate Outlook
On Friday, a core report from the Institute for Supply Management (ISM) revealed signs that inflationary pressures may be waning. U.S. manufacturing activity contracted for the 13th straight month, reinforcing concerns that economic growth may be stagnating.
Key findings included:
– The ISM Manufacturing PMI registered 49.0 for November, unchanged from October, indicating continued contraction in factory activity.
– However, the prices paid index fell more than expected, dropping from 45.1 to 43.7, suggesting easing input cost pressures.
– The employment sub-index declined to 45.8, down from 46.8 the prior month, signaling further softening in labor demand.
These data points supported market sentiment that the Federal Reserve may have reached peak interest rates in this tightening cycle. Attention is now turning to rate cuts potentially beginning in the first quarter of 2026.
Fed Watch and Bond Yields
With inflation cooling and job market signals flashing weakness, traders in futures markets recalibrated their Fed expectations:
– Fed Fund futures now assign a 63 percent chance of a 25-basis-point rate cut at the March 2026 meeting.
– This is up from a 58 percent probability a day earlier and 50 percent just one week ago.
– U.S. Treasury yields responded accordingly, with the 2-year yield falling to around 4.55 percent from over 4.70 percent earlier in the week.
Lower yields diminish the relative attractiveness of the U.S. dollar, particularly against currencies where central banks are standing pat or tightening policy.
Dollar Index Retreats
The U.S. Dollar Index (DXY), which measures the greenback against a basket of six major currencies, fell by 0.2 percent on the day to 104.20. This marked a weekly decline of nearly 1.9 percent, its worst performance since July.
The dollar’s slide can be attributed to:
– Shifting interest rate expectations and corresponding drop in yields.
– A technical sell-off after breaching the 105.00 support level earlier in the week.
– Year-end position adjustments and profit-taking by institutional investors.
Currency Breakdown
Here’s a detailed look at how the major G10 currencies performed against the U.S. dollar at the end of the week:
Japanese Yen (JPY)
– The dollar slid 0.5 percent against the yen to trade at 147.00.
– This comes after touching a multi-week high above 150 yen just two weeks ago.
– The Bank of Japan has recently signaled a gradual shift away from its ultra-loose monetary stance, with Governor Ueda stating that discussions on ending negative interest rates will intensify.
– Japan’s 10-year bond yields have stabilized around 0.76 percent, supporting the yen’s modest recovery.
British Pound (GBP)
– Sterling rose 0.4 percent against the dollar to reach 1.268
Explore this further here: USD/JPY trading.