SYDNEY: Asian shares hit a fresh three-month low on Friday as investors awaited key U.S. inflation data that could either ease or worsen concerns about stubbornly high price pressures, while the dollar towered at two-year peaks.

European markets are set for a lower open, with EUROSTOXX 50 futures down a sizeable 1%. Nasdaq futures fell 0.6%, while S&P 500 futures dropped 0.3%.

A closely watched U.S. inflation gauge - the Core Personal Consumption Expenditures - is due later in the day. Forecasts are centred on a monthly rise of 0.2% for November, and any upward surprises could lead markets to further scale back bets for U.S. policy easing next year.

Investors are also expressing alarm that even some Republicans are not fans of President-elect Donald Trump's big spending plans, with the U.S. government facing a potential shutdown on Saturday. The debate has laid bare fault lines in Trump's Republican Party that could resurface next year.

Trump's proposed policies of tariffs, tax cuts and big spending are part of the reason the Fed has turned cautious about policy easing next year. Markets now see less than two rate cuts next year to a terminal rate of 3.9%, much higher than a few months ago.

That outlook took a heavy toll on the Treasury market, where the benchmark 10-year yields jumped 40 bps over the past two weeks to cross above a key level of 4.5% for the first time since May.

"It's clear how much central banks are worrying about geopolitics and uncertainty in 2025," said James Rossiter, head of global macro strategy at TD Securities.

"Ultimately, uncertainty is going to remain high, policy shocks significant, and markets are going to twist and turn potentially more than in the recent past. 2025 is going to be a ride."

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.6% on Friday to a fresh three-month low and was headed for a weekly drop of 3%.

Japan's Nikkei was flat but down 1.7% for the week. It was up a whopping 16% for the year, in part due to the weakness in the yen, which has depreciated 12% in 2024 and drew constant intervention warnings from Japanese authorities.

Both China's blue chips and Hong Kong's Hang Seng edged up 0.2%. The People's Bank of China left its benchmark lending rates unchanged on Friday, matching market expectations.

Wrapping an eventful year of rate decisions, central banks in Britain, Japan, Norway and Australia held firm, and Switzerland and Canada implemented cuts of 50 basis points at their last meetings of the year. Sweden's Riksbank reduced its policy rate by 25 bps, as did the European Central Bank last week.

All of it meant the dollar was standing tall against its major peers at a two-year peak of 108.43, enjoying some interest rate advantage.

The yen also steadied near a five-month low at 157.11 per dollar. It dived 1.7% overnight as Bank of Japan held rates steady and Governor Kazuo Ueda struck a dovish tone by saying it would take some time to assess the wage outlook and the impact of Trump's policies.

Data on Friday showed Japan's core inflation accelerated in November, but swaps continued to lean towards a pause from the BOJ in January, which is 58% priced in.

The euro is down 1.4% for the week at $1.0359, threatening a key support level of $1.0331.

Treasuries look set for a fourth straight year of losses, with the 10-year yields up a whopping 70 bps this year. They climbed 16 bps this week to 4.56%.

The commodities market has also taken a hit because of a strong U.S. dollar. Oil prices fell on Friday, with U.S. West Texas Intermediate down 0.6% to $68.98 and 2.8% lower for the week.

Gold prices are set for a 2% fall this week to $2,596 per ounce. - Reuters