SINGAPORE Reuters - The dollar went down on Friday after traders were on guard due to concerns over a slowdown in the United States, ahead of a slew of central bank meetings next week, where the Federal Reserve takes centre stage.
The euro was close to a six-month peak hit at the beginning of the week, and was up nearly 0.5% against the dollar overnight. It was 0.23% higher at $1.0579 last week, and is on track for a third straight week of gains.
The pound rose 0.23% overnight to $1.22695, not far from Monday's six month high of $1.2345, as a result of a small gain overnight. The Japanese yen gained more than 0.4% to 136.04 per dollar.
The number of Americans filing new claims for jobless benefits went up moderately last week, with the so-called continuing claims rising to a 10 month high in late November, adding to fears that the world's largest economy could enter a recession next year.
The next year we've got a very awkward outlook, which is playing into the thought process of traders. Jarrod Kerr, chief economist at Kiwibank, said that there was a much lower growth globally, a lower growth in the U.S. as well as lower growth out of the U.S.
The U.S. dollar index fell 0.27% to 104.53, after slipping 0.3% overnight.
It has fallen nearly 7% this quarter, putting it on track for the largest quarterly decline since 2010.
Kerr said that it's very much positioning ahead of the Fed's policy meeting next week.
Money markets are pricing in a 93% chance that the Fed will raise rates by 50 basis points, with rates now seen as just below 5% in May.
Expectations that the Fed will scale back on the pace of its interest rate hikes and that rates may not rise as high as previously feared have knocked the dollar more than 8% off its two-decade peak against a basket of currencies hit in September.
The yield on U.S. Treasuries fell as it fell, with the two-year yield, which typically reflects interest rate expectations, fell to 4.3035%, a 15 year high of nearly 4.9% hit last month. The US Treasury yield curve, which measures the gap between yields on two and 10 year Treasury notes, was inverted at 83.7 bps.
An inversion of this yield curve is typically a precursor to the recession.
Markets are watching for guidance on 2023's outlook, as the Bank of England and the European Central Bank announce their monetary policy decisions next week.
The Aussie went up 0.4% at $0.6797, while the kiwi gained 0.42% to $0.6407.
The antipodean currency has been beneficiaries of the recent easing of its stringent COVID restrictions, given that they are often used as liquid proxies for the Chinese yuan.
The offshore yuan rose more than 0.2% to 6.9424 against the dollar.
Christopher Wong, a currency strategist at OCBC, said that the theme of China is a big one, especially when it comes from a low base.
Prior to the recent rebound, Chinese assets were heavily oversold.