Dollar set to see biggest weekly drop in nearly 4 months as rate bets cool

U.S. dollar bills are seen in front of a stock chart in this November 7, 2016 illustration. REUTERS/Dado Ruvic/Illustration/File Photo

LONDON, May 27 (Reuters) – The dollar was on course for its biggest weekly decline in nearly four months as traders lowered expectations of a Federal Reserve rate hike amid signs that the bank US central could slow or even suspend its tightening cycle in the second half. .

A widespread decline in U.S. Treasury yields, weak economic data and cautious comments from some Fed policymakers, including Atlanta Fed Chairman Raphael Bostic this week, raised fears that the dollar’s gains based on upside aggressive rates have stopped for the time being.

“Tired market speculation of a pause in the Fed tightening cycle in September is certainly helping to keep the dollar weak,” ING strategists said.

The dollar index, which measures the greenback against a basket of six peers, fell to 101.43 for the first time since April 25. On a weekly basis, it fell 1.3%, its biggest weekly decline since the first week of February.

It hit a nearly two-decade high above 105 earlier this month, but has since retreated as economic data has weakened. A Citigroup economic surprise index (.CESIUSD) for the United States fell to its lowest level since September 2021.

Minutes from the Fed’s May meeting this week showed most participants thought 50 basis point hikes would be appropriate at policy meetings in June and July, but many thought big early hikes would do the trick. a break later in the year to assess the effects of this. tougher politics.

The biggest beneficiary of the lower dollar is the euro, but that momentum has also waned as investors believe much of the European Central Bank’s expected rate hikes are already priced in at current levels.

Against the US unit, the single currency hit one-month highs at $1.0765. Sterling was firm at $1.2666.

Better risk sentiment didn’t help bitcoin, however, as it slid 1.62% to around $28,710, continuing this week’s gradual decline from the psychologically important $30,000 level.

The risk-sensitive Australian dollar rose 0.6% to $0.7142, while the New Zealand dollar jumped 0.65% to $0.6520.

Reporting by Saikat Chatterjee; additional reporting by Kevin Buckland in Tokyo; edited by Susan Fenton

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