Dollar Set for Worst Week Since July on Fed Bets, Bank Woes
The dollar fell for a fourth day, putting it on track for its biggest weekly drop in more than two months, amid dovish signals from Federal Reserve officials and fresh worries over US regional banks.
The Bloomberg Dollar Spot Index extended its weekly decline to 0.5%, its worst run since July, while Treasury two-year yields dropped to a six-week low. Traders boosted bets on Fed easing, and are now pricing 53 basis points of cuts by year-end versus 46 on Wednesday.
Fed Governor Christopher Waller said Thursday that officials can keep lowering interest rates in quarter-percentage-point increments to support a faltering labor market. Governor Stephen Miran, meanwhile, reiterated his view that a move twice that size would be appropriate this month.
Even with the US government shutdown in its third week with little sign of resolution and a dearth of economic data, the Fed commentary spurred investors to add dovish exposure.
The dollar also softened as shares of regional lenders slumped on lending-standards concerns, and as political risks in Japan and France eased. Multiple factors are hitting the dollar at once, making it hard to pick a bottom in selloff, according to ING Bank NV analysts Chris Turner and Francesco Pesole.
In options, near-term sentiment has turned more bearish over the next week, even as positioning still leans toward a stronger dollar into year-end.
The greenback has retraced roughly a third of its rebound from last month’s three-year low. Europe-based traders say conviction remains thin, with investors keeping positions short-dated and trading one headline at a time. This is shown through both the spot and options markets as the major currencies are gravitating back toward recent averages.
Source : Bloomberg.com
