By Wael Makarem, Financial Markets Strategists Lead at Exness
The dollar ticked slightly higher on Friday but remained on track for a weekly decline, and could face pressure from increasingly firm expectations of the Federal Reserve easing its monetary policy. Markets continue to price an 85% probability of a rate cut in December and an additional three reductions over the course of 2026. Despite this week’s softness, the dollar is set to close the month broadly flat, reflecting a balance between rising rate-cut expectations and decreasing tensions.
US Treasury yields stabilized modestly after several sessions of declines, with the 10-year rate climbing back above the 4% threshold. Still, the broader trend remains downward, as investors continue to position for a more dovish policy path next year.
Attention now turns to a critical data-heavy week for the US. The manufacturing and services PMIs could offer an important read on the state of economic activity. Any deterioration could reinforce expectations of a more accommodative Fed stance.
Next Friday, the core PCE is expected to hold at 0.2%, and could be another key determinant of the monetary policy outlook. Additionally, speeches from Fed members may provide clearer guidance on how they are interpreting recent softness in labor-market and activity indicators. Collectively, these events could inject meaningful volatility into both currency markets and US yields.