The dollar extended losses for a third consecutive session on Thursday as traders digested comments from senior Federal Reserve officials suggesting the central bank may maintain its benchmark rate well into 2026. The remarks, delivered at a year-end policy forum in Washington, have prompted markets to recalibrate expectations for the timing of the Fed's next move.
"The Fed appears to be signaling that the bar for resuming rate cuts remains quite high," said Eleanor Vance, senior currency strategist at Meridian Global Partners in London. "Combined with typical year-end portfolio rebalancing away from dollar-denominated assets, this has created a perfect storm for greenback weakness."
Against the euro, the dollar continued its recent descent, with the single currency gaining momentum as traders positioned for next week's European Central Bank meeting. Market participants say the ECB faces a different calculus than the Fed, with growth concerns in the eurozone potentially opening the door for more dovish commentary. Sterling also advanced, supported by relative resilience in UK economic data and hawkish undertones from Bank of England communications.
The yen strengthened modestly, though gains were tempered by ongoing policy divergence expectations. While the Bank of Japan has gradually normalized its ultra-accommodative stance, the pace remains glacial compared to other major central banks. Meanwhile, commodity-linked currencies including the Australian and Canadian dollars outperformed, buoyed by stabilization in raw material markets and reduced demand for dollar-based hedging.
Gold prices rallied sharply, extending what traders describe as a technical breakout from a multi-month consolidation pattern. The precious metal's advance reflects both dollar weakness and persistent demand for portfolio insurance amid geopolitical uncertainties. Crude oil traded mixed, with benchmark grades struggling to find direction as markets weigh supply adequacy against murky global demand prospects.
Technical analysts note that the dollar index has breached a key psychological support zone, triggering algorithmic selling and forcing long-positioned speculators to unwind bets. "Momentum indicators have flipped decisively bearish," noted Marcus Chen, head of technical strategy at Pacific Rim Trading. "The next critical test will be whether this represents a genuine trend reversal or merely a seasonal shakeout."
Looking ahead, traders are eyeing next week's US consumer price data and the final nonfarm payrolls report of 2025 as potential catalysts. "The inflation trajectory remains the Fed's north star," said Vance. "Any softness in the CPI could quickly unwind this dollar weakness, while sticky price pressures might validate the Fed's patient approach and extend the greenback's decline."
Disclaimer: This analysis is AI-generated for educational purposes. Traders should verify all information and conduct their own research before making trading decisions.