As metals trigger a frenzy, the dollar posts its biggest weekly drop since June.

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The US dollar posted its biggest weekly decline since June, providing key support for the recent surge in precious metals.

This week, the Bloomberg Dollar Index fell about 0.8%, closing at its lowest level since early October. Year-to-date it has dropped about 8%, on track for the largest annual decline since 2017.

(Bloomberg Dollar Index fell to the vicinity of the October low)

Traders continue to bet on further rate cuts by the Fed in 2026. A key options indicator shows market sentiment towards the dollar is at its most bearish level in over three months, and this expectation has strengthened for five straight trading days.

The market's focus has now shifted to major US economic data due in early January, especially the December jobs report and consumer inflation figures, which will provide guidance for the Fed's next moves.

Dollar Decline Continues, Market Watches December Data

This week saw light trading due to holidays and the UK market closed on Friday, so investors are mainly focused on key US reports to be released in the first weeks of January.

Among major currency pairs this week, risk-sensitive currencies performed the strongest, with the Australian dollar and Norwegian krone leading gains against the US dollar.

Meanwhile, US Treasury yields edged lower for the week; the US 10-year Treasury yield fell about 2 basis points to 4.13%, remaining within the range of recent weeks.

(Major US Treasury yields kept flat this week)

Andrew Hazlett, a trader at Monex FX, said:

Liquidity was thin this week, which didn't help the dollar that was already relatively weak. Looking ahead, our primary focus will be inflation data to gauge the timing of the Fed's next rate cut.

Analysts say the jobs report and consumer inflation data for December are especially important, and will help determine the Fed's next policy direction.

Unemployment data released this month shows the US jobless rate has climbed to its highest since 2021, while consumer inflation data came in below expectations. These numbers strengthen the market's expectations for the Fed to continue easing monetary policy.

Traders expect a roughly 90% chance that the Fed will keep rates unchanged next month, but are betting on a 25 basis point rate cut by mid-next year, followed by another cut a few months later.

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