Dollar set to snap 9-day losing streak; yen near 2-1/2 week high

By Saqib Iqbal Ahmed

NEW YORK, Dec 4 (Reuters) - The U.S. dollar edged up against a basket of currencies on Thursday but stayed close to the five-week low touched earlier in the session as investors braced for a Federal Reserve rate cut next week.

Investors widely expect a rate cut when the Fed meets next week and will be watching for signals on the policy path ahead. Traders are pricing nearly a 90% chance of a quarter-point rate cut next week, LSEG data showed.

"Traders are doubling down on bets the Fed will cut rates and stop short of delivering an overtly-hawkish message at next week’s meeting," Karl Schamotta, chief market strategist at Corpay, said.

The dollar index, which measures the U.S. currency against six rivals, was up 0.1% at 99.02, on pace to snap a 9-day losing steak. It remained near a five-week low of 98.765 and was down about 9% for the year. 

The euro was down 0.2% to $1.1649. The European currency remains supported by data on Wednesday, which showed business activity in the euro zone expanded at its fastest pace in 30 months in November.

U.S. data on Thursday that showed the number of Americans filing new applications for unemployment benefits dropped to the lowest level in more than three years last week, allaying fears of a sharp deterioration in labor market conditions, did little to sway expectations for a Fed rate cut next week.

The dollar also has come under pressure in recent days as investors have also been weighing the prospect of White House economic adviser Kevin Hassett taking over as Fed Chair after Jerome Powell’s term ends in May. Hassett is expected to push for more rate cuts.

U.S. President Donald Trump said this week he will unveil his pick to succeed Powell early next year, extending a months-long selection process despite previously claiming he had already decided on a candidate.

A move to appoint Hassett could pressure the dollar, analysts have said, with bond investors expressing concerns to the U.S. Treasury that Hassett could aggressively cut rates to align with Trump's preferences, the Financial Times reported.

Still, investors remained hesitant to press bearish bets on the dollar.

"Stepping in front of the train wouldn’t be wise at this juncture, but current levels of dollar bearishness could be difficult to sustain into early 2026," Corpay's Schamotta said.

YEN REBOUND   

The yen was up 0.2% at 155.015 per dollar, close to its strongest since November 17, on expectations that the Bank of Japan will raise rates when it meets later this month. 

Three government officials told Reuters that the BOJ is likely to raise rates in December, although what comes after remains uncertain, with markets only fully pricing in one more rate hike next year and around a 50% chance of another. 

"A still-cautious BOJ, attractive carry for long dollar/yen and persistent topside pressure to JGB yields on potential fiscal expansion is likely to keep the pressure on yen weakness," Chidu Narayanan, head of macro strategy in APAC at Wells Fargo, said.        

Sterling fell 0.2% to $1.3333, but was not far from its highest point since October 24 as an upward revision of business activity data painted a brighter picture of the economy.

Leading cryptocurrency bitcoin took a breather after rising more than 8% over the last two sessions, slipping 1.7% to $92,142.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Samuel Indyk and Ankur Banerjee; Editing by Andrew Heavens, Andrea Ricci and Diane Craft)