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The US dollar dipped to its lowest point in over a month as swaps traders scaled back their expectations for another Federal Reserve rate hike and adjusted their forecasts for future rate cuts. Bloomberg’s dollar index tumbled by as much as 0.9% on Friday, reaching a six-week low. This decline followed a drop in Treasury yields, prompted by the rapid repricing of rate reductions for the next year, in response to a report indicating slower-than-expected growth in US job numbers.
Valentin Marinov, Head of G-10 FX Strategy at Credit Agricole, explained, “Data was mixed to slightly weaker than expected, largely confirming that the Fed’s tightening cycle has peaked, dealing a blow to the dollar.”
This marks the third consecutive day of losses for the US dollar, a trend that began after the Federal Reserve decided to keep its target range for the benchmark federal funds rate unchanged. The cooling jobs data reported on Friday reinforced the market’s conviction that the Federal Reserve’s rate-hiking cycle has come to an end.
Over the course of the past week, the US dollar has depreciated by more than 1.4%. If this trend continues, it is on track for its most significant weekly drop since mid-July. During this period, the Bloomberg Dollar Spot Index has remained in positive territory for the year, but it has slipped by nearly 2% from its peak in October 2023.
While the US economy has displayed more robust growth than anticipated, other regions, including Europe, have experienced weaker economic performance. Consequently, currency strategists and options positioning have hinted at an impending cooldown in the dollar’s momentum. Kit Juckes, Chief Foreign-Exchange Strategist at Societe Generale in London, remarked, “The US data may be softer, but other parts of the world are not performing any better, so it is likely that the dollar will remain within a range-bound pattern.”
