The dollar headed for its biggest weekly decline in eight months on Friday as investors trimmed longs and felt, for now, that several U.S. rate hikes this year are fully priced in.
In a week when data showed US inflation at the highest since the early 1980s, selling has forced the greenback through key support against the euro in particular and traders appear to be just lighten their bets until a clearer trend emerges.
The dollar index is down about 0.9% for the week, on track for its biggest weekly percentage decline since last May and likely to halt a rally that has lasted about six months. The index last held at 94.849 in quiet Asian trade.
The euro is up more than 0.8% for the week so far and broke out of a range it has held since late November. At $1.1457, it doesn’t face strong chart resistance until $1.1525.
The yen rebounded 1% over the week and fell to 115 to the dollar, last holding at 114.13.
The moves came as U.S. interest rate futures all but locked in four hikes this year. But longer-term yields fell slightly on hawkish comments from Federal Reserve officials about the bank’s balance sheet reduction.
“Investors seem to be signaling that ending quantitative easing, raising rates four times, and starting quantitative tightening in the space of nine months is so aggressive that it will limit opportunities for longer-term upside,” Derek said. Halpenny, Head of Global Markets Research. at MUFG.
“It actually reinforced the belief that peak fed funds will be below 2%,” Halpenny said in a note to clients.
“What can change that? We will need data on the economy that will convince the market of stronger growth. a renewed strength of the dollar.”
Antipodean currencies have also been taken out of their ranges and traders will be watching employment and inflation data in both countries closely this month for anything that could lead to further changes in the bank’s rhetoric. central.
The New Zealand Dollar is up 1.3% for the week so far and sits above its 50-day moving average at $0.6861. The Aussie briefly broke above stubborn resistance around $0.7276 this week, but fell back to that level on Friday.
“Further evidence of labor market strength will trigger expectations…for a potential positive shift in Reserve Bank of Australia rhetoric that will underpin the AUD outlook,” said Rabobank FX strategist Jane Foley. .
“We expect AUD/USD to climb to $0.74 in the second half of 2022.”
The pound also rose, defying a political crisis threatening Prime Minister Boris Johnson’s stance on confidence that Britain’s economy can weather a wave of COVID-19 infections and rate hikes could begin next month. .
The pound traded above its 200-day moving average on Thursday and is heading for a fourth straight weekly gain of over 0.5%. It last bought $1.3707.
In Asia on Friday, the Bank of Korea raised its benchmark interest rate by 25 basis points to 1.25%, as expected, and the South Korean won sought to hold a weekly rise of around 0, 8%.
The Chinese yuan, on the other hand, saw its gains against the dollar capped by rising expectations of policy easing to mitigate the landing of a slowing economy. Trade data is expected around 0200 GMT.
Other notable moves in overnight trade included the Canadian dollar retreating from a two-month high as oil prices eased and the safe-haven Swiss franc rising to a ten-week high of 0. 9093 for one dollar.