Investing.com – The U.S. dollar fell slightly on Friday, pausing briefly after forceful gains this week, ahead of the release of the Fed’s preferred inflation gauge.

At 04:40 ET (09:40 GMT), the dollar index, which tracks the dollar against a basket of six other currencies, was trading 0.2% lower at 107.960, after hitting a two-year high earlier in the week.

Dollar on weekly gains rate

The currency fell slightly on Friday but is still on track for a weekly gain of around 1%, boosted by a relatively hawkish U.S. interest rate outlook following the Federal Reserve’s last policy meeting of the year.

U.S. central bank policymakers currently only anticipate an additional 50 basis points of monetary easing in 2025, which will likely amount to two cuts of 25 basis points, rather than the four cuts indicated in the previous September forecasts.

November is expected to grow by 2.9% on an annual basis, down from 2.8% in the previous month, while monthly figures are expected to rise by 0.2%, down from 0.3% in October.

A stronger-than-expected rise in the core PCE index could have a huge impact on markets as the Fed’s hawkishness has shifted the likelihood towards smaller or potentially no further cuts next year.

“Market prices have moved hawkishly and are approaching our team’s forecast of another 25 basis point cut for 2025,” Macquarie analysts said in a note.

Sterling near one-month low after delicate retail sales

In Europe, quotations were unchanged at 1.2500 after falling to a one-month low on Thursday after Bank of England policymakers voted 6-3 to keep interest rates unchanged on Thursday, a greater division than expected amid concerns about an economic slowdown.

Figures released earlier on Friday showed Britain’s November growth was a weaker-than-expected 0.2%, below the expected 0.5% jump.

rose 0.2% higher to 1.0385, just shy of a one-month low and is still on track for a weekly decline of more than 1% thanks to dollar strength.

rose unexpectedly in November, increasing by 0.1% on an annual basis instead of the expected decline of 0.3%, while the economic climate indicator in the German retail sector fell slightly, the Ifo Institute said on Friday.

This year has been very complex for the retail sector, and the overall economic environment is likely to remain challenging in 2025, “even though many retailers are hoping for an improvement in consumer sentiment,” Ifo expert Patrick Hoeppner said.

It cut its policy rate last week for the fourth time this year and is likely to make further rate cuts in 2025 if inflation concerns fade.

The yen was supported by CPI data

In Asia, it fell 0.4% to 156.74, and the November reading was slightly stronger than expected, strengthening the case for a final interest rate hike by .

However, the yen fell to its weakest level in five months on Thursday after comments from Governor Kazuo Ueda suggested the hike would come later rather than earlier in 2025.

rose 0.1% to 7.3050, reaching its highest level since November 2023.

The People’s Bank of China left its benchmark unchanged on Friday, in line with broad expectations, with the central bank deemed to have confined ability to cut interest rates further amid continued weakening of the yuan.