The dollar accelerated its month-end slide against major currencies on Friday as markets priced in a more dovish Federal Reserve trajectory for 2026. Traders cited November's consumer price data, released earlier this week, which showed inflation cooling faster than anticipated across core measures. The development prompted a wave of position adjustments as hedge funds and asset managers reduced bullish dollar bets heading into the final trading weeks of 2025.
Market analysts note the greenback faces mounting headwinds from shifting rate differentials. The euro gained ground amid renewed debate over the European Central Bank's policy path, with policymakers offering mixed signals on the pace of further easing. Sterling also advanced, supported by resilient UK economic data and expectations that the Bank of England may maintain its cautious approach longer than previously priced. Meanwhile, the yen emerged as the standout performer, climbing to its strongest level in weeks after Bank of Japan Governor Ueda hinted at "gradual but steady" normalization in a speech to Tokyo business leaders.
Technical momentum indicators suggest the dollar index is testing key support zones that, if broken, could trigger additional selling pressure from systematic trend-following funds. In commodities, gold prices advanced for a fourth consecutive session as lower real yields and safe-haven demand offset profit-taking pressures. Oil markets remained volatile, caught between OPEC+ supply considerations and concerns over Chinese demand growth. Bitcoin strengthened alongside broader risk asset sentiment, with crypto traders watching for potential regulatory developments expected from the incoming Congress in January.
Looking ahead, market participants are focused on next week's Fed policy meeting, where officials are widely expected to hold rates steady but may adjust their economic projections. The dot plot revision will be scrutinized for clues on the 2026 rate path. Additionally, year-end liquidity conditions and rebalancing flows from sovereign wealth funds and pension managers could amplify price swings through December. Geopolitical developments, including ongoing trade negotiations and Middle Eastern supply risks, remain wildcard factors that could quickly shift currency dynamics.
Disclaimer: This analysis is AI-generated for educational purposes. Traders should verify all information and conduct their own research before making trading decisions.