The U.S. dollar continued to weaken on Friday, on track for a substantial weekly loss as renewed concerns over regional banks fueled expectations of additional interest rate cuts by the Federal Reserve later this year.
At 04:10 ET (08:10 GMT), the U.S. Dollar Index — which measures the greenback against a basket of six major currencies — slipped 0.1% to 97.975, putting it on pace for a 0.7% decline this week, its steepest five-day drop since late July.
Banking worries drag on the greenback
The dollar’s decline deepened as investor focus shifted back to the stability of U.S. regional banks. Zions Bancorporation and Western Alliance Bancorporation both reported loan issues tied to fraud, reigniting concerns about the health of the sector as U.S. economic momentum shows signs of slowing.
“The contagion to other risk assets shows not only that markets are still sensitive to regional bank concerns (a legacy of SVB’s 2023 collapse), but potentially to the broader credit market, which has been operating on exceptionally tight spreads over the past few months,” said analysts at ING Group in a note.
This renewed banking stress, combined with trade tensions and signs of softening growth, has reinforced expectations that the Fed may deliver additional rate cuts in the months ahead.
“In such a volatile environment, it’s hard to pick a bottom for USD. DXY [the dollar index] might need to slip back all the way to 97.50 before finding strong support, unless some encouraging domestic U.S. news comes to the rescue today,” ING added.
Euro edges higher after French vote
The euro gained ground, with EUR/USD up 0.2% at 1.1713, supported by political developments in France after Prime Minister Sébastien Lecornu survived two no-confidence votes on Thursday by agreeing to delay pension reform.
“That is … enough for the euro to price out a good portion of the French risk premium, and barring a new government collapse before year-end, this should allow EUR/USD to refocus on canonical market drivers (rates and equities),” said ING.
The single currency also drew some support from news that U.S. President Donald Trump and Russian President Vladimir Putin plan to meet within the next two weeks to discuss a possible end to the war in Ukraine.
Meanwhile, GBP/USD slipped 0.1% to 1.3424, giving back part of the previous session’s gains after U.K. data showed a return to modest economic growth in August.
Yen rallies on BOJ signals
USD/JPY fell 0.6% to 149.60 as the yen strengthened following remarks from Kazuo Ueda, Governor of the Bank of Japan.
Ueda said the central bank would continue to raise rates if confidence in meeting its economic targets improves. Although he provided no specific timeline or scale for future moves, his comments lent support to the yen just ahead of the BOJ’s late-October policy meeting.
Other majors mixed
USD/CNY edged up 0.1% to 7.1269, with the yuan trading in a narrow range this week as firm midpoint fixes were offset by weak inflation data and escalating U.S.-China trade tensions.
AUD/USD fell 0.5% to 0.6449, with the Australian dollar posting weekly losses after disappointing labor market figures increased expectations of further rate cuts from the Reserve Bank of Australia.
This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
Some portions of this content may have been generated or assisted by artificial intelligence (AI) tools and been reviewed for accuracy and quality by our editorial team.
Leave a Reply