The U.S. dollar firmed slightly on Friday as traders lowered expectations for a December rate cut from the Federal Reserve. Even with the modest uptick, the greenback remained on course to end the week lower, with investors sifting through policy signals and awaiting fresh economic data now that the government has reopened.

At 04:05 ET (09:05 GMT), the Dollar Index was up 0.1% at 99.125, though still heading toward a roughly 0.4% weekly loss.

Dollar steadies after Fed officials strike cautious tone

The currency drew limited support after several Fed policymakers reiterated concerns about easing too aggressively, pointing to lingering inflation pressures and signs that hiring remains steady.

Minneapolis Fed President Neel Kashkari told Bloomberg he opposed last month’s rate cut and remains undecided about whether to support another move in December.

Similarly, remarks from St. Louis Fed President Alberto Musalem and Cleveland Fed President Beth Hammack suggested that cutting rates too soon risked making monetary policy “overly accommodative” with inflation still elevated.

Market data from CME Group’s FedWatch tool now shows just over a 50% chance of a rate cut at the December 10 meeting, down from 63% the day before.

Nevertheless, many investors remain cautious about taking fresh long-dollar positions as they await delayed U.S. economic releases.

Analysts at ING noted that “while the move in the dollar fits our bearish view, it feels a bit premature and at risk of rapid reversal should the initial batch of U.S. data prove not as bad as seemingly priced in.”

Sterling slips as UK fiscal strategy comes under scrutiny

GBP/USD fell 0.2% to 1.3172, surrendering part of its previous session’s gains against a soft dollar.

The pullback came after the Financial Times reported that U.K. Prime Minister Keir Starmer and Finance Minister Rachel Reeves had abandoned plans to raise income tax rates ahead of the November 26 budget — a major shift in policy direction.

ING commented, “It’s not clear how Reeves plans to fill the £30bn fiscal hole without touching income tax. Media reports are currently suggesting a number of options being considered. One appears to be freezing the threshold for income tax brackets, which would have a similar fiscal effect as raising the rate on one bracket and could be well received by markets.”

EUR/USD hovered at 1.1632 after touching a two-week high on Thursday. Investors now look to eurozone GDP data expected to show 0.2% quarterly growth in Q3.

ING added, “EUR/USD has now entirely erased its undervaluation gap, and we now feel less confident about short-term upside unless U.S. data come in soft. We see some correction risks today, with a return below 1.160 surely possible.”

Yuan weakens after soft Chinese data; yen, aussie move higher

In Asia, USD/CNY edged up 0.1% to 7.1007 after China reported disappointing October economic indicators, including weaker industrial production and a sharper-than-expected decline in fixed-asset investment. Retail sales offered a modest upside surprise but still slowed from September.

USD/JPY ticked higher to 154.60, recovering part of Thursday’s retreat from the closely watched 155 level — an area associated with past Japanese government intervention.

AUD/USD advanced 0.6% to 0.6577 after stronger Australian labor market data reduced expectations that the Reserve Bank of Australia will deliver further rate cuts.

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