Dollar posts worst week in over a month; euro snaps five-week losing streak
Expectations for a Fed rate hike in October have gone down
The dollar is close to its weakest level since September 4 / Photo: Unsplash.com / Giorgio Trovato
The dollar posted its biggest weekly slide in more than a month, ending a four-week winning streak. The U.S. currency fell as traders curbed expectations for a rate hike in October after Fed Chair Kevin Warsh offered no signals on the path of monetary policy.
Details
The Bloomberg Dollar Spot Index weakened as much as 0.4% on Friday before ending the day 0.2% weaker. It recorded its biggest weekly loss since September 4, Bloomberg reported. The U.S. currency weakened against most major currencies, while the euro advanced and snapped a five-week losing streak.
At meetings organized by the International Monetary Fund in Bangkok, Warsh declined to comment on monetary policy or the U.S. economy. This was his last opportunity to signal his views before the Fed entered its blackout period ahead of its October 27-28 meeting, Bloomberg writes.
“Warsh offered no guidance, which while it should be expected of him at this point, the market is taking it as a signal that the October Fed meeting is likely a no go,” CIBC Capital Markets strategist Noah Buffam said, as quoted by Bloomberg. Growing risks around AI investments, which have supported U.S. economic growth in recent years, are putting additional pressure on the greenback, Buffam noted.
The probability of a rate hike at the October meeting now stands at just 17.2%, according to the CME FedWatch tool. A month ago, it was almost 50%.
Context
Earlier in the week, U.S. inflation data came in above expectations, fueling bets that the Fed could raise rates again and boosting the dollar, Bloomberg notes. Before the September meeting, when the Fed raised rates for the first time in three years, Warsh had sent hawkish signals to markets about the need to contain inflation.
The Fed’s shifting signals are increasing uncertainty over the path of interest rates, according to Spectra Markets President Brent Donnelly, as quoted by Bloomberg. Now, “they are wheeling out doves like mad, and October is priced out despite rip-roaring monthly data this week,” Donnelly wrote, referring to inflation and retail sales data that came in above forecasts.
