By Amanda Cooper

LONDON (Reuters) – The pound eased modestly against the dollar, which held firm on Thursday, as investors remained laser-focused on who President-elect Donald Trump’s Treasury Secretary pick might be and what that might mean for his policies on growth, trade and taxes.

With the dollar in the ascendant, sterling wilted, last down 0.1% at $1.26405.

It’s risen 1.2% against the euro, which has come under intense pressure against the dollar in particular, as traders try to factor in the potential hit to euro zone growth from an aggressive stance on tariffs from the incoming Trump administration.

The pound got a brief lift the day before from data that showed UK consumer inflation staged an unwelcome pickup in October, confirming the belief in the market that the Bank of England will be one of the slowest among the big central banks to lower rates meaningfully over the coming year.

Even against that backdrop, sterling has fallen by close to 2% against the dollar this month and turned negative on the year.

Money markets currently show traders believe the BoE could lower rates by around 68 basis points by next December. For the Bank’s next meeting on Dec. 19, there’s no expectation of any move at all.

Commerzbank (ETR:) strategist Michael Pfister noted that there is barely a 50% chance priced in for a rate cut in February either.

“We still believe that the next rate cut will take place then. The argument in favour of this is that monetary policy is still likely to be seen as quite restrictive and policymakers will certainly want to avoid falling behind the curve,” he said.

He added that if inflation data shows a sustained pickup, the discussions around a February cut are “likely to intensify”.

Next (LON:) up on the macro calendar are preliminary surveys of business activity for November for the UK, the euro zone, the United States and elsewhere due on Friday.

The most recent Purchasing Managers’ Index (PMI) for October came in at 52 for Britain, above the 50 mark that separates growth from contraction and ranking the UK second behind the United States, which logged a reading of 54 last month.

Friday’s PMI is expected to come in at 51.8, according to a Reuters poll of economists.

Investing.com – The U.S. dollar edged marginally higher Thursday, consolidating after recent volatility, while the euro continued to show softness as the situation in eastern Europe becomes more fraught. 

At 05:10 ET (10:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 106.690, adding to the previous session’s gains and remaining near last week’s one-year high. 

Dollar consolidates near highs 

The dollar may have slipped slightly Thursday, but remains in demand as relations between Russia and the West remain extremely fraught, as Ukraine used both US and UK missiles to strike deep into Russian territory.

The US currency has also been buoyed by Donald Trump’s victory in the presidential election, with traders digesting policies aimed at big fiscal spending, higher tariffs and tighter immigration, measures that could foster inflation and potentially slow Federal Reserve easing.

“The DXY is holding gains and it is not hard to see why. US rates are being repriced modestly higher as the market shifts away from pricing a December Fed rate cut,” analysts at ING said, in a note. “Just 8bp of easing is now priced.”

There are data later in the session for investors to digest, while several Federal Reserve officials are also set to speak in the coming days. 

Euro heads further lower

In Europe, traded 0.3% lower to 1.0516, after slipping 0.5% on Wednesday, back toward last week’s low of $1.0496, its weakest against the dollar since Oct. 2023.

“EUR/USD looks to have been buffeted by events in Ukraine this week,” ING noted. “The war is going through a period of escalation as both sides seek to gain ground ahead of potential ceasefire discussions early next year. That the Biden administration is providing more support before year-end warns of a more aggressive Russian response – a development which is weighing on European currencies.”

Also weighing is the weak economic climate in Europe, coupled with the potential for a trade war with the new Trump-led US administration.

“The balance of risks on growth and inflation is … shifting to the downside, and possible US tariffs are not expected to alter significantly the inflation outlook in Europe,” ECB policymaker Francois Villeroy de Galhau said earlier Thursday in a speech in Tokyo.

fell 0.2% to 1.2630, after data released earlier Thursday showed that Britain borrowed more than expected in October.

In October alone, stood at £17.4 billion, the Office for National Statistics said, the second-biggest October borrowing total since records began in 1993.

Yen gains on Ueda’s comments

fell 0.7% to 154.38, with the Japanese yen receiving a boost after Bank of Japan Governor Kazuo Ueda said the central bank will “seriously” take into account foreign exchange-rate moves in compiling its economic and price forecasts.

He noted that there is still a month to go until the BOJ’s next policy meeting in December, adding that there will be more information to digest by then.

dropped 0.1% to 7.2415, but the yuan remained close to near four-month lows, pressured by the potential for trade headwinds from a Trump presidency. 

Investing.com– Most Asian currencies were muted on Friday as the U.S. dollar remained near a 13-month high, while the Japanese yen steadied after consumer inflation came in slightly above expectations. 

Regional currencies have lost ground over the last few weeks, pressured by the strength in the dollar, as caution over a slower pace of interest rate cuts by the Federal Reserve weighed on sentiment. Traders were also on edge over just what U.S. President-elect Donald Trump’s policies will entail for Asian countries, especially China.

The Chinese yuan’s pair rose 0.1% and was near a four-month high. The yuan has depreciated as much as 1.8% against the dollar so far in November, as middling signals on Chinese stimulus measures also weighed on local markets.

The South Korean won’s pair, and the Singapore dollar’s pair were largely flat. Both the currencies have lost nearly 2% each against the dollar, so far this month.

The Australian dollar’s pair was also flat, while the Indian rupee’s pair hovered below record highs, at around 84.5 rupees. 

Dollar steady at one-year peak

The was up slightly at 107.06, after touching a one-year high of 107.15 on Thursday. also steadied near a 13-month peak in Asian trade.

Recent data points- particularly last week’s sticky inflation readings and Thursday’s better-than-expected weekly jobless claims- saw traders pare back expectations of the Fed cutting rates in December.

Speculation over Trump’s policies, which could reignite inflation and limit the Fed’s ability to cut rates in the long term, has also supported the greenback.

Traders were cautious about the outlook for the Fed’s interest rate path, and are pricing in a 61.3% chance of a 25 basis points cut at the December meeting, down from 72.2% a week ago, according to .

Fed Chair Jerome Powell recently stated that the central bank is in no rush to cut rates, citing the economy’s resilience.

Overnight, labor data showed weekly initial unexpectedly dropped to a seven-month low, but also showed that it is taking longer for laid-off workers to find new jobs, indicating the unemployment rate could rise this month.

The (PCE) index, the Fed’s preferred measure of inflation, is scheduled for release next Friday and is expected to provide more cues on interest rates.

Japanese yen steady after stronger-than-expected CPI

The Japanese yen’s pair was 0.1% lower after a 0.6% drop in the previous session. But the currency was also nursing steep losses against the dollar through October and November.

Japanese inflation grew slightly more than expected in October, while the core measure rose above the central bank’s annual target band, keeping bets alive for another rate hike by the Bank of Japan (BOJ). A Reuters poll showed on Friday that analysts expect the BOJ to raise rates in December.

Sticky inflation is expected to invite more interest rate hikes from the BOJ, after the central bank raised rates twice so far in 2024.

BOJ Governor Kazuo Ueda on Thursday said that the bank will scrutinise data ahead of its rate review next month, and “seriously” take into account the impact yen moves could have on the economic and price outlook. 

Other data showed Japanese business activity shrank for a fifth straight month in November as demand from private sector companies remained stagnant during the period.