The dollar falls toward its first weekly loss since January as traders evaluate the Fed’s strategy.

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On Friday, traders attempted to gauge the direction of Federal Reserve policy as the U.S. dollar fell back from a 2-1/2-month high against the yen and weakened toward its first weekly loss since January against major peers.

Even though 10-year U.S. yields fell from a nearly four-month high close to 4.1 percent on Friday, the yen threatened to extend a weekly losing streak to seven weeks. The yen is particularly sensitive to differences in long-term interest rates between Japan and the United States.

“Slow and steady is going to be the appropriate course of action,” Atlanta Fed President Raphael Bostic said overnight, despite new labor figures adding to the run of strong data of late, taking some steam out of the dollar and the breathless advance in U.S. yields.

In a client note, RBC strategists wrote, “For this year, the outlook for USD will continue to depend critically on whether bonds and equities can rally together (as it appeared to be happening in January) or whether we remain in the bearish/bearish environment that dominated 2022.”

“In turn, this will depend on new data from the United States, particularly data on inflation.”

The dollar index, which compares the dollar to the yen, euro, and four other major peers, fell 0.11 percent to 104.85 from 105.36 at the beginning of the week, the highest level since January 6. The index has lost 0.36 percent since the previous Friday.

According to Reuters polls of analysts, the recent strength of the dollar is only temporary; the currency will weaken throughout the year due to expectations that the Federal Reserve will stop raising interest rates much earlier than the European Central Bank.

After Governor Haruhiko Kuroda leaves office next month, it is also anticipated that the Bank of Japan (BOJ) will begin to phase out extraordinary stimulus programs.

The core measure of inflation did slow from a 42-year high, though Tokyo inflation data for February exceeded the BOJ’s target for a ninth month.

After reaching its highest level since Dec. 20 at 137.10 overnight, the dollar fell 0.15 percent to 136.575 yen. The dollar is just slightly above flat for the week, but any gain would extend its winning streak that began in mid-January.

After rising from a nearly two-month low of $1.0533 at the beginning of the week, the euro gained 0.08 percent to $1.0606. It has increased 0.59 percent since Friday.

About the author

Nafees Saifi // entrepreneur, author, trainer, and stocks and FX trader. 
Nafees Saifi is a professional FX trader from, India. Nafees has extensive experience trading commodities, bonds, and equity futures in the Asian, European, and US markets. Nafees holds a Bachelor of Finance and Economics degree and is focused heavily on Investment Finance and Quantitative Analysis.


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