Dollar set for a most significant weekly drop

The dollar was on track for its worst weekly drop in almost four months as traders downgraded Federal Reserve rate hike expectations amid signals that the US central bank may stall or halt its tightening cycle in the second half of the year.

A broad drop in US Treasury yields, dismal economic data, and cautionary comments from certain Fed governors this week has increased the possibility that the dollar’s gains predicated on aggressive rate hikes may have come to an end for the time being.

The dollar is likely to remain weak due to the market’s tentative anticipation about a stop in the Fed’s tightening cycle in September.

For the first time since April 25, the dollar index, which measures the greenback against a basket of six rivals, dipped to 101.43. It was down 1.3 per cent weekly, the most significant weekly loss since the first week of February.

It rose above 105 for the first time in nearly two decades earlier this month but has subsequently fallen as economic data has worsened. The Citigroup economic surprise index for the United States has reached its lowest point since September 2021.

The euro has benefited the most from the dollar’s slide. Still, that momentum has slowed as investors assume that many of the European Central Bank’s projected rate hikes have already been factored into current levels.

The euro climbed to $1.0765 against the US dollar, its highest in a month. The value of the pound stayed stable at $1.2666.

However, improved risk sentiment did not aid bitcoin, which fell 1.62 per cent to approximately $28,710, continuing this week’s slow retreat from the psychologically significant $30,000 barrier.

The risky Australian dollar rose 0.6 per cent to $0.7142, while the New Zealand currency rose 0.65 per cent to $0.6520.