Dollar poised for biggest weekly drop in nearly four months as Fed rate hike speculation slows

LONDON — The dollar was poised for its biggest weekly drop in nearly four months as traders reduced Federal Reserve rate hike expectations amid signs that the U.S. central bank might slow or even pause its tightening cycle in the second half of the year. We apologize, but this video hasn't loaded.

You can see other videos from our team by tapping here. A broad-based decline in U.S. Treasury yields, weak economic data and cautious comments from some Fed policymakers, including Atlanta Fed President Raphael Bostic this week, have raised the possibility that the dollar's gains may have been halted for now despite the fact that the Dollar set has fallen for the biggest weekly drop in nearly 4 months.

The market's tentative speculation about a pause in the Fed's tightening cycle in September is probably contributing to keeping the dollar soft, ING strategists said. The dollar index, which measures the dollar against a basket of six peers, fell as low as 101.43 for the first time since April 25. It was down 1.3% on a weekly basis, its biggest weekly drop since February. It hit a nearly two-decade peak above 105 earlier this month, but has since retreated as economic data has weakened. Since September 2021, a Citigroup economic surprise index for the United States has fallen to its lowest level since September 2021. Minutes from the Fed's May meeting this week showed that most participants believed 50 basis-point hikes would be appropriate at the June and July policy meetings, but many thought big early hikes would allow room to assess the effects of policy tightening later in the year.

The euro is the main beneficiary of the dollar's decline, but that momentum has stalled as investors believe that a lot of the expected rate hikes from the European Central Bank are already baked into current levels. The single currency rose to its highest level in a month against the U.S. unit, at $1.0765. Better risk sentiment did not help bitcoin, which fell 1.62% to around $28,710, continuing its gradual decline from the psychologically important $30,000 level this week. The Australian dollar gained 0.6% to $0.7142, while the New Zealand dollar jumped 0.65% to $0.6520.