Anna 
On Thursday, the euro faced a downward trajectory, reaching its lowest point in over three weeks as traders heightened expectations of rate cuts by the European Central Bank (ECB), potentially commencing in March 2024. Meanwhile, the dollar maintained stability as investors awaited crucial payrolls data later in the week.
The euro registered a 0.07% decline to $1.0757, marking its lowest level since November 14. With a 1% drop this week, the single currency is on track for its most significant weekly decline since May.
Market sentiment leans towards an 85% probability of the ECB implementing interest rate cuts at its March meeting, with nearly 150 basis points’ worth of easing priced in by the end of next year. Comments from ECB member and Bank of France head Francois Villeroy de Galhau, indicating that disinflation is occurring faster than expected, further fueled speculations of a rate cut in 2024.
The dollar index, measuring the U.S. currency against six counterparts, exhibited a modest increase of 0.038% to 104.17, approaching the two-week high touched on Wednesday. With a 0.9% weekly gain, the index is poised for its strongest weekly performance since July.
Wednesday’s data revealing a lower-than-expected increase in U.S. private payrolls for November contributed to the dollar’s recent strength. Investors are now eagerly awaiting Friday’s non-farm payrolls data for a comprehensive assessment of the labor market.
The Canadian dollar experienced a marginal decline of 0.10% against the U.S. dollar, settling at 1.36 per dollar. This came after the Bank of Canada held its key overnight rate at 5% and left room for potential future hikes, emphasizing concerns about inflation amid economic slowdown indicators.
In contrast, the Japanese yen strengthened by 0.47% against the greenback, reaching 146.59 per dollar and nearing its three-month high of 146.23 earlier in the week. Expectations that the Bank of Japan might end its negative rate policy, combined with dollar softness, contributed to the yen’s ascent from the near 33-year low observed in mid-November.
Bank of Japan Governor Kazuo Ueda affirmed on Thursday that the central bank has various options regarding which interest rates to target once it lifts short-term borrowing costs out of negative territory. The yen’s recent resilience underscores the ongoing shift in market expectations and dynamics influencing major global currencies.
