Yen Surges to Six-Week High as Dollar Slips Ahead of Month-End
Yen surged to a six-week high against the dollar on Friday, driven by unexpectedly strong inflation data in Tokyo, which bolstered expectations of a potential Bank of Japan interest rate hike next month.
Tokyo's core consumer price index (excluding fresh food) climbed 2.2% in November compared to the previous year, exceeding October's 1.8% increase and surpassing forecasts of a 2.1% rise.
"The yen is becoming a momentum trade with little resistance, especially in thin holiday markets," said Matt Simpson, senior market analyst at City Index.
With U.S. markets quieter due to the Thanksgiving holiday on Thursday and reduced activity on Friday, trading volumes were subdued.
The dollar dropped 1.27% to 149.62 yen, having earlier touched 149.47 yen, its weakest level since October 21. It is on track for a 3.38% weekly decline against the yen—the steepest since July.
The broader dollar index slipped 0.31% to 105.74, after hitting a low of 105.61, marking its lowest point since November 12. However, the index remains poised for a 1.78% monthly gain as investors adjust to expectations of economic policies under the upcoming U.S. administration led by Donald Trump, including regulatory easing and pro-growth measures.
Analysts also caution that proposed tariffs and stricter immigration policies could stoke inflationary pressures.
Stronger-than-expected economic indicators have further fueled speculation that the Federal Reserve may ease the pace of its interest rate cuts as it nears a neutral policy stance.Traders are factoring in a 66% likelihood of a 25 basis point rate cut at the Federal Reserve's December 17-18 meeting, with only a 17% chance of an additional cut in January, according to the CME Group’s FedWatch Tool.
Attention now shifts to the next significant U.S. data release—the November employment report, due next Friday.
The euro rose 0.24% to $1.0578 but remains down 2.8% for November, heading for its worst monthly performance since May 2023 as the dollar strengthened.
On Friday, French consumer price data aligned with forecasts, while Germany's inflation figures from Thursday showed stable price pressures in November, defying expectations of a second consecutive rise.
European Central Bank policymaker Francois Villeroy de Galhau suggested on Thursday that the ECB should remain open to a more substantial rate cut next month. This contrasted with hawkish remarks from fellow ECB member Isabel Schnabel earlier in the week.
Bitcoin advanced 2.39% to $97,414, edging closer to its all-time high of $99,830 reached last week. For November, the cryptocurrency is poised for a 39% surge—its strongest monthly gain since February—driven by optimism over a potentially more crypto-friendly regulatory environment under Donald Trump.
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