Key Moments
- The U.S. Dollar Index rose 0.4% to 98.200, recovering from its lowest level since early October earlier this week.
- Sterling fell 0.8% to 1.3322 against the dollar after softer U.K. inflation data increased expectations of a Bank of England rate cut.
- USD/JPY climbed 0.5% to 155.54 as the yen weakened ahead of a widely expected Bank of Japan rate hike.
Dollar Firms as Traders Weigh Fed Outlook
The U.S. dollar strengthened on Wednesday, pulling back from its weakest levels since early October. This happened as market participants reassessed the Federal Reserve’s interest rate trajectory following softer labor market data.
At 03:55 ET (08:55 GMT), the Dollar Index, which tracks the U.S. currency against a basket of six major peers, rose 0.4% to 98.200. Earlier in the week, it had dipped to its lowest point since October.
Despite this rebound, the index has fallen more than 9% so far this year. Consequently, it is on track for its sharpest annual drop since 2017.
#Dollar strength in the last hours was mostly driven by:
U.S. macro data beating expectations
Higher U.S. yields widening rate differentials
Risk-off positioning / safe-haven flows
Divergent central bank expectations
Technical breakout momentumWhat to Watch Next (for #USD):… pic.twitter.com/kSaEQAAGEb
— Matthew Dixon – Veteran Financial Trader (@mdtrade) December 17, 2025
Labor Data Highlights Cooling U.S. Job Market
Figures released on Tuesday showed U.S. nonfarm payrolls increasing by 64,000 in November, surpassing economists’ expectations. However, this gain followed a steep loss of 105,000 jobs in October, while the unemployment rate rose to 4.6%, the highest since 2021.
Therefore, the data suggests a slowing labor market and complicates the outlook for future Fed policy decisions.
That said, analysts at ING noted: “The combined release of October and November jobs data did not alter the Fed’s narrative that the risk to the U.S. labor market is on the downside.”
They added, “While Chair Powell has said that data releases will be distorted by the government shutdown, he also emphasized that the unemployment rate is the best indicator of the U.S. labor supply-demand imbalance. The 4.6% rate is now slightly above the median 4.5% expected by FOMC members for the end of 2025.”
Sterling Hit by Softer U.K. Inflation
In Europe, the pound weakened after the latest U.K. inflation figures reinforced expectations of imminent policy easing from the Bank of England.
GBP/USD slid 0.8% to 1.3322. This followed data showing annual U.K. consumer price inflation fell to 3.2% in November, down from 3.6% in the prior month, marking the lowest reading in eight months.
The Bank of England’s Monetary Policy Committee voted 5-4 to keep rates unchanged at its last meeting. However, moderating price pressures could push the committee toward a future rate cut.
A reduction of 25 basis points would lower the benchmark rate to 3.75% from 4%, the lowest level since February 2023.
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