The dollar is declining slightly, but it is on track to record its largest weekly gains in a month.

The dollar declined marginally during Friday's trading, as the American currency maintained a limited decline during the session with investors' attention now turning to the upcoming meeting of the U.S. Federal Reserve scheduled for next week, after key inflation data was released this week that somewhat clarified market expectations regarding the upcoming federal interest rate decision.

The Dollar Now

In terms of trading, the dollar index DXY – which measures the performance of the U.S. currency against a basket of 6 other major currencies – fell by 0.11% to record 106.96 points, as the greenback prepares to achieve weekly gains of about 0.96%, its largest gains in 4 weeks.

What Affected Dollar Movements?

Data released this week showed that U.S. consumer price inflation matched market expectations for October, with the overall Consumer Price Index (CPI) growing by 2.7%, slightly above the previous reading of 2.6%, but still in line with expectations.

This strengthened expectations for a possible interest rate cut by the Federal Reserve during the upcoming Federal Open Market Committee meeting next week, while expectations have begun to indicate a slowdown in the pace of interest rate cuts during the U.S. central bank's meetings next year.

These expectations follow data released yesterday showing producer prices grew more than anticipated, reflecting ongoing inflationary pressures that may ultimately affect consumers, leading to lower expectations for the pace of federal interest rate cuts next year and providing some support for the dollar.

Against other major currencies, the U.S. dollar outperformed both the Japanese yen and the British pound, as expectations now grow that the Bank of Japan may refrain from raising interest rates at its meeting next week, causing the dollar to rise by 0.54% against the Japanese yen, surpassing the 153 yen level for the first time in two and a half weeks.

The British pound fell against the dollar by about 0.2% to 1.264 dollars, after data released today showed another contraction in the UK’s Gross Domestic Product (GDP) in October, following a contraction in September as well, contrary to expectations.

In contrast, the euro led gains against the U.S. dollar, as the shared currency of the European Union rose by about 0.64% against its American counterpart, reaching 1.0499 dollars, following better-than-expected industrial production data in the region.

The Australian dollar also rebounded against the U.S. dollar, rising by 0.16% to record 0.6376 U.S. dollars, amid growing speculation that the Reserve Bank of Australia may not move to cut interest rates until May of next year.