Dollar set to snap 5-week losing streak as Fed cut bets pared

TOKYO : The dollar traded near a one-week high versus major peers on Friday, on track to snap a five-week losing run, after robust economic data pared bets for aggressive Federal Reserve interest rate cuts.
The euro languished close to a two-week low to the dollar as cooling inflation in Germany and Spain boosted the case for European Central Bank easing.
The yen held near the closely watched 145 per dollar level after weakening on Thursday, as the greenback tracked a rise in U.S. Treasury yields.
The Japanese currency largely ignored data on Friday showing core consumer prices in Tokyo climbing at a faster than expected 2.4 per cent in August, again topping the Bank of Japan’s 2 per cent target, although a measure that also strips out energy costs rose by just 1.6 per cent.
Overnight, U.S. data showed gross domestic product (GDP) grew a 3.0 per cent annualised rate in the second quarter, an upward revision from the 2.8 per cent rate reported last month. Economists polled by Reuters had forecast GDP would be unrevised.
“That’s been the market mover from the price action overnight, particularly when you look at currencies and U.S. Treasury yields,” said Rodrigo Catril, senior FX strategist at National Australia Bank, referring to the GDP reading.
“The takeaway there – the highlight – is that the consumer was stronger than had previously been thought,” he added. “The exceptionalism of the U.S. was still evident in Q2.”
Traders now more strongly favour a quarter-point Fed rate reduction on Sept. 18, laying only 34 per cent odds of a 50-basis point (bp) cut, down from 38 per cent a day earlier, according to the CME Group’s FedWatch Tool.
The U.S. dollar index – which measures the currency against a basket of six major peers – was little changed at 101.34 as of 0032 GMT, after rising 0.36 per cent on Thursday and touching the highest since Aug. 22 at 101.58.
It’s on course for a 0.66 per cent gain this week, which would be its best week since the start of April and snap a five-week losing streak. Over August though, it’s set for a 2.6 per cent drop, which would be its worst month since November.
The dollar eased 0.14 per cent to 144.78 yen, after rising as high as 145.55 overnight for the first time since Aug. 23.
The euro was flat at $1.1082 and dropped as low as $1.10555 on Thursday. Later in the day, more consumer inflation readings from around Europe are due, including France, Italy and the euro zone as a whole.
The United States also sees the release of the core personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge.
Sterling was steady at $1.31655 after dipping to $1.3146 overnight for the first time since Aug. 23.

(This story has been corrected to say that the dollar index was set for its best week since April, not August, in paragraph 10)