Band Gertrude Chavez-Dreyfuss
NEW YORK, June 24 (Reuters) – The US dollar fell on Friday and posted his first weekly drop this month, as traders reduced bets where interest rates could peak and have advanced their outlook on the timing of rate cuts to counter a possible recession.
An important factor this week was the fall in oil and commodity prices, which eased inflation fears and allowed equity markets to rebound. This eroded the safe-haven supply that boosted the dollar against major currencies.
“Falling commodity prices could help bring headline inflation down – especially in the fall months – reducing the need for aggressive monetary tightening,” said Karl Schamotta, chief market strategist at payment company Corpay in Toronto.
WE fed funds futures price friday in a 73% probability of a 75 basis point hike at the July meeting. But for September the market has fully taken into account in just a 50– increase in base points. FEDWATCH
The market also priced in a fed funds rate of 3.31% on Friday, down from 3.51% a week ago.
In afternoon New York trading, dollar index =USDwhich measures the US unit against the six major currencies, fell 0.2% at 104.013.
The safe-haven greenback slid further after data showed new home sales jumped 10.7% to a seasonally adjusted annual rate of 696,000 units last month. The May sales pace was revised up to 629,000 units from the previously reported 591,000 units.
The University of Michigan Consumer Sentiment Survey showed mixed results as sentiment deteriorated in June to 50of a final rread in May from 58. But the reading of five-year inflation expectations rose to 3.1 from the preliminary estimate of 3.3% in mid-June.
The dollar, up about 9% this year, has lost some luster since investors began betting that the Fed could ease the pace of rate tightening after another 75 basis point hike in July. They now see rates peak next March around 3.5% and fall nearly 20 basis points by July 2023.
That rate hike pushed 10-year Treasury yields to two-week lows, while the dollar index lost 0.5% this week.
For now though, Fed Chairman Jerome Powell has underscored the central bank’s “unconditional” commitment to controlling inflation. Fed Governor Michelle Bowman also backed 50 basis point hikes for “next” meetings after July.
Analysts have noted a revaluation of terminal rates in the developed world as fears of recession grow.
“The Fed has said it will do its best to lower inflation without dealing a heavy blow to the economy,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
“But if a soft landing were to ultimately prove elusive, the Fed would likely have to change course and start cutting rates. So while the rate debate remains fluid, for now inflation fears have gave way to hopes of a looser policy if things really got worse.”
The Japanese yen JPY=EBSsensitive to changes in US rates, fell by 0.2% at 135.20 to the dollar.
euro EUR=EBS pink 00.3% at $1,0553.
The fall in the greenback boosted even commodity-focused currencies such as the Australian dollar and the Norwegian krone. Aussie AUD=D3increased by 0.8% at $0.6946, and posted its weekly gain after two consecutive weeks of losses.
The Norwegian krone, fresh off Thursday’s 50 basis point rate hike, rose 1.2% at 9.8495 per dollar NOK=D3.
The The euro fell to its lowest since early March against the Swiss unit at 1.0052 frank. It was the last dish at 1.0118 francs EURCHF=.
Currency rates at 4:13 p.m. (GMT 2013)
Closing of the previous session
Percentage change since the beginning of the year
New Zealand Dollar/Dollar
World exchange rateshttps://tmsnrt.rs/2RBWI5E
(Reporting by Gertrude Chavez-Dreyfuss in New York; Additional reporting by Sujata Rao in London and Kevin Buckland in Tokyo; Editing by Richard Chang and Alistair Bell)
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