Investing.com – The U.S. dollar strengthened on Friday and will end a volatile week with modest gains as investors digest the fallout from Trump’s up-to-date presidency and the Federal Reserve’s lax policies.

At 04:30 ET (09:30 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading unchanged at 104.372.

The index is on track to gain just 0.2% this week, even after rising 1.5% on Wednesday following Donald Trump’s election victory, when it posted its biggest one-day gain since September 2022.

The dollar weakens Trump’s gains

The dollar rose to a four-month high on Wednesday as investors positioned for the up-to-date Trump administration, whose tariff and immigration policies are likely to prompt the Federal Reserve to cut interest rates more slowly and shallowly.

However, some of those gains were erased by Thursday’s 25-basis-point rate cut, which signaled the likelihood of further rate cuts as inflation appeared to be heading toward the central bank’s 2% target.

“Much of the dollar voting movement has been developed. In our view, this is more like a positioning adjustment than a rethinking of what the Trump presidency means for global markets,” ING analysts said in a note.

“Remember that markets have come into Election Day broadly pricing in a Trump victory, and while the dollar has surged in response to Republicans’ clean-cut approach, there may now be questions about how far the dollar can rise in the near term given the shift in focus back to the macroeconomic discussion.”

The US Consumer Price Index for October will be released next week, which may impact market sentiment at the end of the year.

Euro burdened by the German political crisis

In Europe, it fell 0.2% to 1.0785, with the single currency heading for a weekly loss of around 0.5%, weighed by the political crisis in Germany, the euro zone’s biggest economy.

German Chancellor Olaf Scholz fired his finance minister on Wednesday, paving the way for early elections after months of disagreements in his three-party coalition.

The political turmoil comes at a critical time for Europe’s largest economy, with Trump’s election victory increasing the risk of a trade war with the region’s main trading partner.

“Yesterday, EUR/USD briefly hovered above 1.080 amid a broad-based pullback from post-election long USD positions,” ING said. “There appears to be a loosening of positions and we doubt that markets are again considering the negative consequences of Trump’s expected policies for the euro zone.”

fell 0.2% to 1.2961, with sterling continuing to fall from the psychologically critical level of 1.30 following the Bank of England’s latest interest rate cut.

On Thursday, the council cut rates for the second time since 2020, by 25 basis points to 4.75% from 5%, but also indicated that the latest UK budget could result in inflation taking a year more to return to target on a sustained basis. at the level of 2%.

“A December rate cut seems rather unlikely given the budget, and markets are also pricing in with a very low implicit probability,” ING said. “At the same time, we do not think the budget will significantly derail the BoE’s monetary easing path next year and we still expect faster cuts in the spring compared to market expectations.”

Yuan is waiting for an NPC meeting

rose 0.2% to 7.1555, with the yuan weakening slightly, with the main focus on the NPC meeting, which ends on Friday, for more guidance on Beijing’s plans to introduce fiscal stimulus.

Analysts expect the government to approve at least 10 trillion yuan ($1.6 trillion) in up-to-date spending in the coming years. The NPC meeting comes after Beijing announced a series of stimulus measures last month but did not specify their timing or scale.

fell 0.4% to 152.39 and the yen gained after Japanese ministers issued up-to-date verbal warnings over potential intervention in the currency market.

fell 0.5% to 0.6646 but was heading for a weekly gain of more than 1%.