The USD index continued its descent on Friday, shrugging off a slight rise in front-end U.S. Treasury yields and falling 0.44% to 103.91 into the week’s close.
Longer-end yields moved lower, still supporting the current softening Fed rate expectations and sapping the dollar of the main source of strength throughout much of 2023, which had been fueled by high-for-longer U.S. rate expectations.
The acceleration downward in Fed rate expectations has outpaced views concerning other major central banks that are seen as on the road to easing at some point, producing a torrent of dollar selling, especially after softer-than-forecast U.S. CPI.
That largely excludes the BoJ, which never began tightening, aside from mild adjustments to its yield curve control policy.
EUR/USD gained 0.42%, edging above Thursday’s to a peak of 1.0905 where option interest is thought to reside.
A close above 1.09 will put the Aug.
30 high at 1.0946 and Aug.
10 peak at 1.1065 in sharp focus.
USD/JPY appeared on track for a close below 150, which should shift momentum to the downside, though support by the 55-DMA at 149.25 was holding even after a few bruising probes.
A lower Fed rate view removes the prime catalyst for USD/JPY gains in 2023, which could lead to an accelerated trip downward as cuts become prevalent in H2 2024.
GBP/USD gained 0.3% to 1.2450, venturing above Thursday and Friday resistance at 1.2444.
A close above the 200-DMA though slightly bullish sets up for a test of Monday/Tuesday highs by 1.25 and the 100-DMA at 1.2509.
Oil's 4% rally helped boost CAD and AUD, with lower global rate expectations also expected to be growth-positive.
Outside of the dollar’s slide and oil rise, risk was relatively subdued as U.S. equity markets traded either side of flat on Friday.
Gold and silver eked out slight gains amid the lower global rate outlook.
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