The US dollar is heading for its largest weekly drop in four months on Thursday as trading volumes decline due to the US Thanksgiving holiday, prompting investors to look ahead to the coming year while the Federal Reserve appears to be the only institution poised to cut interest rates. The dollar index, which measures the US currency's performance against a basket of major currencies, was steady at 99.433 after falling from a six-month high set last week and is on track for its biggest weekly loss since July. "The market will soon start thinking about the big trades for 2026, and I strongly doubt that 'buying the dollar' will be one of them," said Brent Donnelly, president of Spectra Markets. He explained that if White House economic advisor Kevin Hassett, a proponent of rate cuts, is appointed as the next Federal Reserve chairman, this would likely be a negative signal for the dollar. Meanwhile, the yen rose 0.4% to 155.87 per dollar in Asian trade, supported by a shift in tone from Japanese officials toward tightening monetary policy, while the euro climbed above $1.16. The New Zealand dollar also rebounded to a three-week high of $0.5728, up about 2% since the central bank shifted to a tightening policy on Wednesday. The Reserve Bank of New Zealand cut rates but on Wednesday said it had discussed holding rates steady and signaled that the easing cycle was likely over. Markets expect another rate hike by December 2026. The Australian dollar also rose after inflation data came in higher than expected on Wednesday, reinforcing the view that the easing cycle there was also over. Pressure from the People's Bank of China's fixing mechanism kept the yuan stable at 7.08 per dollar. The British pound rose to its highest levels since late October at $1.3265, set for its biggest weekly gain since August as the UK budget helped alleviate some concerns about national financial conditions.
