Dollar Poised for Largest Weekly Drop Since April on Weak Jobs Data
The US dollar declined on Friday, heading for its largest weekly fall in 12 weeks, as a weak US jobs report released on Thursday tempered expectations for a near-term interest rate hike by the Federal Reserve. This development also provided a reprieve for the Japanese yen. As the dollar weakened broadly, the euro rose against the dollar, reaching $1.1440, after touching a near two-week high the previous day, and gained 0.5% for the week. Market participants now price in approximately a 45% chance of a Fed rate hike at the September meeting, according to CME's FedWatch tool. US Treasury markets were closed on Friday due to the Independence Day holiday. Karl Steiner, Chief Analyst at SEB, stated that his firm's forecast does not include a rate hike, aligning with their view of a eventual pivot and a weaker dollar, and he would not be surprised by further downside for the dollar. The dollar index fell about 0.2% to 100.83, following a 0.5% drop on Thursday, and is down 0.5% for the week, marking its largest weekly decline since early April.
The recent US jobs report has significantly influenced market sentiment, leading to a reassessment of the Federal Reserve's monetary policy trajectory. The data's weakness has diminished expectations for immediate interest rate hikes, suggesting a potential shift in the Fed's approach. This recalibration of monetary policy expectations is impacting currency markets, with the dollar weakening against other major currencies. Investors are now contemplating the possibility of a Fed pivot, which could lead to further dollar depreciation. The market's reaction highlights the sensitivity of currency valuations to macroeconomic data and central bank signaling, particularly in the context of evolving inflation and growth dynamics over the next decade.
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