The US dollar weakened further heading into the end of the trading week as the Federal Reserve lowered interest rates at its final meeting of 2025. The greenback has slumped over the past month after gaining modest momentum once it reached a bottom this past summer.
The US Dollar Index (DXY), a measure of the buck against a weighted basket of currencies, fell 0.47% to 98.33, from an opening of 98.79, on Thursday. The index is poised for a weekly loss of about 0.7%, adding to its year-to-date decline of 9.4%.
Monetary policymakers pulled the trigger on the third consecutive quarter-point rate, bringing the new target range for the benchmark federal funds rate to 3.5% to 3.75%.
Additionally, the central bank signaled another interest rate cut in the year ahead, with the futures market pointing to April as the potential for the next policy rate action.
But market watchers say the US dollar could gain strength in 2026 because the Fed is not as hawkish as Wall Street had hoped. Still, forecasts could change as more government economic data trickles in this month, including the November jobs report and the November Consumer Price Index (CPI) report.
If gradual cooling becomes a meltdown, there could be a case for more than one rate reduction next year.
“Gradual cooling in the labor market has continued,” Fed Chair Jerome Powell told reporters at the post-meeting press conference on Wednesday. “Surveys of households and businesses both show declining supply and demand for workers. So, I think you can say that the labor market has continued to cool gradually, just a touch more gradually than we thought.”
The other wild card is President Donald Trump’s replacement in May. Trump’s selection, who is expected to be National Economic Council Director Kevin Hassett, could put more than one rate cut on the table, especially if employment conditions deteriorate at a rapid pace.
“With the Fed’s most influential members keeping a keen eye on the unemployment rate, we think that as long as labor demand wanes and [the] unemployment rate increases, the path will be cleared for additional cuts, despite the vocal opposition from the hawks,” Natixis economist Christopher Hodge said in a note, according to CNBC.
US Treasury yields were mostly in the red, with the benchmark 10-year yield dipping below 4.77%. The two-year yield, which typically tracks Fed policy, declined 2.9 basis points to below 3.54%.
The USD/CAD currency pair erased 0.16% to 1.3772, from an opening of 1.3794. The EUR/USD surged 0.37% to 1.1740, from an opening of 1.1697.