The dollar index fell on Friday as Treasury yields weakened on concerns that mounting losses in U.S. stocks, which breached key supports, could deter the Fed to from signaling more aggressive action to fight inflation following next week's meeting.
The dollar's losses came primarily against low-yielding, safe-haven currencies such as the euro, yen and Swiss franc while gaining against the high-beta or risk-sensitive aussie, sterling and kiwi.
Encapsulating Friday's migration out of risk and into safety, GBP/JPY fell 0.6%, with sterling also suffering in the wake of unexpectedly weak UK retail sales nL8N2U118R, which echoed similar shock from the U.S. nAPN0DT3Z2 a week earlier.
The recent data disappointments, combined with rising risk aversion, challenge the notion that Fed and BoE can subdue rampant inflation with a barrage of rate hikes without financial or economic consequences, even as the ECB nL8N2U01N7 and BOJ nL4N2U00CX refrain.
EUR/USD was up 0.3% on Friday but down 0.6% on the week.
The S&P 500 fell below its 200-day moving average in intraday trade, after the Nasdaq closed below its 200-DMA on Thursday, weighing on Treasury yields and presenting a potential a reprieve for EUR/USD longs nL1N2U11JE if sustained.
Sterling was down 0.25% but found support at the 100-DMA, likely aided by BoE policymaker Catherine Mann's defense of the BoE's tightening program nL8N2U13HF.
Sterling has been consolidating rapid gains that followed the BoE's first rate hike in December.
It peaked last week after becoming overbought and failing to overcome the 200-DMA.
Focus is now on the Jan.
26 Fed and Feb.
3 BoE meetings and recent risk aversion nL1N2U11CO.
USD/JPY was down 0.35% due to tumbling Treasury-JGB yields spreads and stock market angst favoring the haven yen.
Prices are probing Bolli band and cloud support, whose staying power looks tied to the rout in U.S. stocks abating.
An S&P 500 close below its 200-DMA would put USD/JPY's January lows by Fibo props in play nL1N2U11FA.
The Australian dollar was down 0.5% with its risk-proxy role hurting it amid the global slide in stocks.
Bitcoin and ether fell roughly 6% and 7.4%, respectively, with bitcoin now near the 50% Fibo of its incredible 3,122-69,000 2018-21 advance nL1N2U11P5.
Global PMIs for January are the main data focus before the Fed on Wednesday.
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