U.S. dollar fell Friday. What about Sterling and Aussie? 

The U.S. dollar plummeted against its major peers on Friday. It was on course for its first weekly decrease this month as traders continued to assess the path of the U.S. Federal Reserve’s policy and whether aggressive rate increases would trigger a recession. Furthermore, the safe-haven greenback lost support as market sentiment improved gradually. Regional stock markets rallied while riskier currencies like the Australian and New Zealand dollars surged forward.

The dollar index tumbled down by 0.2% to 104.19 against the basket of six major currencies in Asia. That undid the previous day’s 0.19% gain, accumulated mostly thanks to a decline in the euro. On Thursday, weak European factory data prompted investors to reduce bets for European Central Bank tightening and pushed the common currency lower.

Westpac strategists noted that recession talk has significantly upset the DXY uptrend, but they don’t think retracements have legs beyond the low 102s when it comes to the dollar index. Moreover, Fed Funds seem set to jump above 3% by year’s end. So, the dollar’s interest rate support should ultimately continue to build. Meanwhile, the ECB struggles to contain peripheral spreads, and the euro area is facing more material stagflation hardship. That’s hardly enticing for traders.

Greenback trading has been choppy this week, with forex markets now betting on more cautious policy action from the Federal Reserve. The agency has already obliged by another expected 75 basis point rate hike in July. The dollar index has plunged by 0.42% over the period.

What do the Fed officials say?

On Thursday, Fed Governor Michelle Bowman stated that she supports 50 basis point increases for the next few meetings. Besides, Fed Chair Jerome Powell stressed the central bank’s unconditional commitment to hindering inflation on his second day of Congressional testimony.