Dollar set for weekly loss amid expectations of US Fed slow hikes

The U.S. dollar hovered near a three-month low on Friday and was headed for a weekly loss, as the prospect of the Federal Reserve slowing monetary policy tightening as soon as December preoccupied investors.

The euro edged up after the GfK institute survey showed German consumer sentiment is expected to stabilise next month with the help of energy measures.

The dollar was struggling to make headway after thin trading on Thursday due to the U.S. Thanksgiving holiday.

Risk-sensitive sterling was near a three-month high against the U.S. currency.

"We've still got the third successive day of positive risk sentiment ... I think that is keeping the U.S. dollar subdued pretty much across the board," said Ray Attrill, head of FX strategy at National Australia Bank.

Minutes from the Fed's November meeting released earlier this week showed that a "substantial majority" of policymakers agreed it would soon be appropriate to slow the pace of interest rate rises.

Those remarks sent the dollar tumbling as the Fed's aggressive rate increases and market expectations of how high the central bank could take them has been a big driver of the currency's 10% surge this year.

Against a basket of currencies, the U.S. dollar index stood at 105.8, down 0.05% on the day.

The Fed aside, accounts of the European Central Bank's October meeting released overnight showed that policymakers fear that inflation may be getting entrenched in the euro zone. While the ECB firmly committed to further rate rises, markets are now expecting a more modest, 50 basis point move at the December meeting.

Against the dollar, the euro gained 0.1% to $1.0420, edging toward an over four-month high of $1.0481 hit last week. The Japanese yen was unchanged on the day at 138.63 to the dollar.

Core consumer prices in Japan's capital rose at their fastest annual pace in 40 years in November, exceeding the central bank's 2% target for a sixth straight month, government data showed.

The New Zealand dollar fell 0.26% to $0.6248 but remained close to its three-month peak hit in the previous session. The kiwi was eyeing a weekly gain of more than 1.5%, aided by the Reserve Bank of New Zealand's 75 bp rate increase this week and its hawkish rate outlook.

In China, markets were closely watching for an expected cut in banks' reserve requirement ratio (RRR).

China will use timely cuts in banks' RRR, alongside other monetary policy tools, to keep liquidity reasonably ample, state media quoted a cabinet meeting as saying.

The offshore Chinese yuan was last at 7.1662 to the dollar and was headed for a second weekly loss, as COVID worries continue to weigh.

 

(Reporting by Rae Wee in Singapore and Joice Alves in London; Editing by Emelia Sithole-Matarise)