The dollar fell against the Japanese yen but clawed back most of its earlier losses against the euro on Thursday in thin trading as investors looked ahead to Federal Reserve interest rate cuts next year.
The dollar index, which measures the US currency against six rivals, fell to a fresh five-month low of 100.61 and was last down 0.05% on the day at 100.82. The index is on course for a 2.58% decline this year, snapping two straight years of strong gains.
The greenback has declined as expectations of rate cuts have increased, notably after the Fed’s unexpectedly dovish stance at its December meeting.
Markets see the Fed’s first rate cut coming in March and are pricing in 156 basis points of easing by next December.
The day’s biggest mover was the Japanese yen. The dollar dropped as much as 0.82% to 140.66 yen, its lowest since July 28, and was last down 0.73% at 140.78. The greenback remains on track for a 7.38% gain against the currency this year.
Net shorts in the yen against the US dollar fell to 64,902 contracts in the latest week ending Dec. 19, compared to 81,131 the previous week, according to data from the Commodity Futures Trading Commission.
With inflation exceeding its 2% target for well over a year, many market players expect the BOJ to raise rates next year with some betting on the chance of action as early as in January.
