The Dollar declined alongside US Treasury yields on Friday, following weaker-than-expected US economic data this week that strengthened expectations for additional Federal Reserve rate cuts later this year.
Despite this, the greenback was set to record its fourth straight weekly rise against the Euro, bouncing back from the steep fall after “Liberation Day” on 2nd April, when President Donald Trump revealed tough new trade tariffs.
A US-China trade truce boosted the Dollar on Monday, but the initial excitement faded as the currency declined on Tuesday and Thursday following economic data releases, Reuters reports.
“The Dollar short-term rates relationship has loosened in the past two months, but the market’s bearish US Dollar tendency means further dovish repricing could prove to be the catalyst for fresh Dollar short building,” stated Francesco Pesole, rate strategist at ING.
Markets now expect 59 basis points of Federal Reserve easing by December, an increase from the previous 49 basis points, following Thursday’s data. They also assign a 40% probability of a 25-basis point rate cut by July.
In addition, the benchmark 10-year US Treasury yield continued its decline, dropping 7 basis points and trading 5 basis points lower at 4.41% in London. Meanwhile, the two-year yield fell 3.5 basis points to 3.94%.
Furthermore, the Euro increased by 0.2% to $1.1209 and was set to close the week with a 0.34% decline.
It was one of the top performers in March following Germany’s announcement of large-scale investments, and saw another boost in April after “Liberation Day,” when worries about the Dollar’s safe-haven appeal led to a short-lived selloff of US assets.
Moreover, the Dollar was poised to end its three-week rally against the Yen, falling 0.45% and heading for a weekly decline of 0.15%, following Japan’s disappointing GDP figures last week and dovish comments from a Bank of Japan official.
“US investors may wish to consider adding European and Japanese equities and bonds with lower or zero hedging, even though it would mean giving up some income from interest-rate differentials,” according to Jeff Blazek, co-CIO multi-asset strategies at Neuberger Berman.
“There is potential for another 3-5% of (Dollar) weakening against the Euro and Yen this year,” he went on to say.
In addition, the Dollar dropped 0.2% to 100.51 against a basket of currencies but was still set for a modest weekly gain, buoyed by a strong 1.3% jump on Monday.