The US Forex-dollar fell on Friday, heading for its first weekly loss this month, as traders reduced their bets on when interest rates would peak and shared their thoughts on the timing of rate cuts to counteract a possible recession. The drop in oil and commodity prices this week has alleviated inflationary concerns and allowed equity markets to recover. This has weakened the safe-haven bid that has boosted the dollar's value against other major currencies.
By 1210 GMT, the dollar index, which compares the US dollar to six major currencies, was flat to slightly lower around 104.3. It rose 0.2 percent on Thursday, primarily due to a drop in the euro after weak business activity data reduced expectations of European Central Bank tightening. The dollar, which has gained around 9% this year, has lost some of its lustre since investors began betting that the Federal Reserve would slow the rate-tightening pace after another 75 basis-point increase in July. They now expect rates to peak around 3.5 percent in March of next year and then fall by nearly 20 basis points by July 2023.
This rate hike repricing has pushed 10-year Treasury yields to two-week lows, while the dollar index has dropped 0.4 percent this week. For the time being, Fed Chair Jerome Powell has emphasised the central bank's "unconditional" commitment to containing inflation.