Dollar sceptics are concerned about the pace of future interest rate increases by the U.S. Federal Reserve. The Fed is expected to deliver its fourth-rate hike of 2018 in December, but markets are trying to gauge how much tighter can policy get next year without risking a slowdown in the domestic economy, which has so far held up well even as borrowing costs have risen. The dollar index (DXY), a gauge of its value versus six major peers, traded marginally lower at 96.46. Much of the weakness is due to the strength in the euro and sterling, which together constitute 70 percent of the index.
While the Fed is on a monetary tightening path, the Bank of Japan remains committed to its ultra-loose monetary policy due to low growth and inflation. This interest rate differential between U.S. and Japanese bonds makes the dollar a more attractive bet than the yen. USDJPY was fetching 112.96, little changed from its previous close trading in narrow range.
The euro and sterling edged higher against the dollar on Friday after Britain and the European Union agreed a draft text setting out their future relationship before a summit on Sunday.
Traders were cautiously optimistic about the draft declaration agreed by the United Kingdom and the European Commission which outlined how the trading relationship, security and other matters will work once the divorce is finalised. EURUSD is currently trading at 1.1420 having advanced by 0.2% overnight.
Traders are still waiting for more clarity around the Brexit deal as it faces a rocky ride once it reaches a deeply divided British parliament. GBPUSD is up 0.08% at $1.2870, with Brexit negotiations the key driver through the day.
In commodity markets, Oil prices slumped to 2018 lows on Friday in thin but volatile trading, pulled down by concerns of an emerging global supply overhang amid a bleak economic outlook. Oil prices have plunged by around 30 percent since their last peaks in early October, as global production started to exceed consumption in the fourth quarter of this year.
U.S. (WTI) crude oil slumped by more than 2 percent, to $53.35 a barrel, after coming within 5 cents of an October 2017 low reached earlier in the week. Brent crude oil futures hit their lowest since December 2017 at $61.52 per barrel.