FOREX-Dollar drifts higher but expected to see biggest weekly drop in 4 months

Band Saikat Chatterjee

LONDON, May 27 (Reuters)The dollar edged higher on Friday but was on course for its biggest weekly decline in nearly four months as traders lowered Federal Reserve rate hike expectations amid signs the US central bank could slow down or even suspend its tightening cycle in the second half.

A widespread decline in U.S. Treasury yields, weak economic data and cautious comments from some Fed policymakers, including Atlanta Fed Chairman Raphael Bostic this week, raised fears that the dollar’s gains based on upside aggressive rates have stopped for the time being.

“Tired market speculation of a pause in the Fed tightening cycle in September is certainly helping to keep the dollar weak,” ING strategists said.

The dollar index = USDwhich measures the greenback against a basket of six other major currencies, fell to 101.43 for the first time since April 25. On a weekly basis, it fell 1.3%, its biggest weekly decline since the first week of February.

It hit a nearly two-decade high above 105 earlier this month, but has since retreated as economic data has weakened. A Citigroup economic surprise index .CESIUSD for the United States fell to its lowest level since September 2021.

But some analysts have been cautious about calling for a deeper dollar decline as global markets remain on edge.

“Month-end portfolio rebalancing should give the dollar a boost, so I expect losses to ease and suspense to be high for ISM and payrolls next week after the terrible data. on new home sales this week,” said Kenneth Broux, FX strategist at Societe Generale in London.

Minutes from the Fed’s May meeting this week showed most participants thought 50 basis point hikes would be appropriate at policy meetings in June and July, but many thought big early hikes would do the trick. a break later in the year to assess the effects of this. tougher politics.

The biggest beneficiary of the lower dollar is the euro, but that momentum has also waned as investors believe much of the European Central Bank’s expected rate hikes are already priced in at current levels.

Against American unity, the single currency EUR=EBS briefly hit one-month highs at $1.0765. Sterling GBP=D3 was firm at $1.2666.

A better sense of risk hasn’t helped bitcoin BTC=BTSP however, that slid 1.62% to around $28,710, continuing this week’s gradual decline from the psychologically important $30,000 level.

The risk-sensitive Australian dollar AUD=D3 rose 0.6% to $0.7142, while the New Zealand dollar USD=D3 jumped 0.65% to $0.6520.

World exchange rates

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(Reporting by Saikat Chatterjee; additional reporting by Kevin Buckland in Tokyo; editing by Susan Fenton, Kirsten Donovan)

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