The US dollar slipped on Friday and posted its first weekly decline this month, as traders pared back bets on where interest rates might peak and brought forward their outlook on the timing of rate cuts to counter a possible recession.
A significant factor this week has been the fall in oil and commodity prices, which has eased inflation fears and allowed equity markets to rebound. This has eroded the safe-haven bid that has been boosting the US dollar against major currencies.
“Falling commodity prices could help pull headline inflation prints downward — particularly into the autumn months — reducing the need for aggressive monetary tightening,” said Karl Schamotta, chief market strategist at payments company Corpay in Toronto.
US fed funds futures on Friday priced in a 73 percent probability of a 75 basis-point increase at the meeting next month.
However, for September the market has fully factored in just a 50 basis points rise. The market has also priced in a fed funds rates of 3.31 percent on Friday, from 3.51 percent a week earlier.
In afternoon New York trading, the US dollar index, which measures the US unit against six major currencies, fell 0.3 percent to 104.012, down 0.6 percent weekly.
In Taipei, the New Taiwan dollar rose against the greenback, gaining NT$0.050 to close at NT$29.732, little changed from last week’s NT$29.720.
The Japanese yen, sensitive to changes in US yields, was down 0.2 percent at 135.20 per dollar.
The euro rose 0.3 percent to US$1.0553.
The greenback’s slide boosted even commodity-focused currencies such as the Australian dollar and Norwegian krone. The Aussie rose 0.8 percent to US$0.6946, and posted its weekly gain after two straight weeks of losses. The Norwegian krone, fresh off Thursday’s 50-basis-point rate hike, was up 1.2 percent at 9.8495 per US dollar.
The euro fell to its lowest since early March against the Swiss franc at 1.0052 Swiss francs. It was last flat at SF1.0118.
The safe-haven greenback on Friday slipped further after data showed new home sales in the US jumped 10.7 percent to a seasonally adjusted annual rate of 696,000 units last month.
Last month’s sales pace was revised higher to 629,000 units from the previously reported 591,000 units.
The University of Michigan consumer sentiment survey showed mixed results, with sentiment worsening this month to 50, from a final reading of 58 last month.
However, the reading on five-year inflation expectations eased to 3.1 percent from the preliminary 3.3 percent estimate in the middle of this month.
The US dollar, up about 9 percent this year, has lost some of its shine since investors started betting the US Federal Reserve could slow the rate-tightening pace following another 75-basis-point increase next month.
They now see rates peaking in March next year at about 3.5 percent and falling nearly 20 basis points by July next year.
Additional reporting by CNA, with staff writer
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