U.S. dollar retreats as markets re-assess Fed rate path
* U.S. dollar posts first weekly decline this month
* U.S. rate hike bets pare back aggressive Fed tightening path
* U.S. new home sales rise; Michigan sentiment worsens
By Gertrude Chavez-Dreyfuss
NEW YORK, June 24 (Reuters) - The U.S. dollar slipped on Friday and posted its first weekly decline this month, as traders pared back bets on where interest rates may peak and brought forward their outlook on the timing of rate cuts to counter a possible recession.
A significant factor this week has been the fall in oil and commodity prices, which has eased inflation fears and allowed equity markets to rebound. This has eroded the safe-haven bid that has been boosting the dollar against major currencies.
"Falling commodity prices could help pull headline inflation prints downward - particularly into the autumn months - reducing the need for aggressive monetary tightening," said Karl Schamotta, chief market strategist at payments company Corpay in Toronto.
U.S. fed funds futures on Friday priced in a 73% probability of a 75 basis-point increase at the July meeting. But for September the market has fully factored in just a 50-bps rise. FEDWATCH
The market has also priced in a fed funds rates of 3.31% on Friday, from 3.51% a week ago.
In afternoon New York trading, the dollar index =USD , which measures the U.S. unit against six major currencies, fell 0.2% to 104.013.
The safe-haven greenback slipped further after data showed new home sales jumped 10.7% to a seasonally adjusted annual rate of 696,000 units last month. May's sales pace was revised higher to 629,000 units from the previously reported 591,000 units.
The University of Michigan consumer sentiment survey showed mixed results, with sentiment worsening in June to 50, from a final reading in May of 58. But the reading on five-year inflation expectations eased to 3.1 from the preliminary 3.3% estimate in mid-June.
The dollar, up around 9% this year, has lost some of its shine since investors started betting the Fed could slow the rate-tightening pace following another 75 basis-point increase in July. They now see rates peaking next March around 3.5% and falling nearly 20 bps by July 2023.
This rate hike repricing sent 10-year Treasury yields to two-week lows, while the dollar index has lost 0.5% this week.
For now though, Fed Chair Jerome Powell stressed the central bank's "unconditional" commitment to taming inflation. Fed Governor Michelle Bowman also supported 50 bps hikes for "the next few" meetings after July.
Analysts noted terminal rate repricing across the developed world as recession fears grow.
"The Fed has said it will do its best to bring down inflation without dealing a significant blow to the economy," said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington.
"But if a soft landing should ultimately prove elusive, then the Fed would likely have to change course and start to slash rates. So while the rate debate remains fluid, for now inflation fears have given way to hopes of looser policy if things really deteriorate."
The Japanese yen JPY=EBS , sensitive to changes in U.S. yields, was down 0.2% at 135.20 per dollar.
The euro EUR=EBS rose 0.3% to $1.0553.
The greenback's slide boosted even commodity-focused currencies such as the Australian dollar and Norwegian crown. The Aussie AUD=D3 rose 0.8% to US$0.6946, and posted its weekly gain after two straight weeks of losses.
The Norwegian crown, fresh off Thursday's 50 basis-point rate hike, was up 1.2% at 9.8495 per dollar NOK=D3 .
The euro fell to its lowest since early March against the Swiss unit at 1.0052 francs. It was last flat at 1.0118 francs EURCHF= .
Currency bid prices at 4:13PM (2013 GMT) Description
U.S. Close Pct Change
+104.5100 +103.9400 Euro/Dollar
+135.3900 +134.3600 Euro/Yen
+142.7700 +141.4300 Dollar/Swiss
+0.8562 NZ Dollar/Dollar NZD=D3
World FX rates Link
CRB index Link
Peak rates Link
Reporting by Gertrude Chavez-Dreyfuss in New York; Additional reporting by Sujata Rao in London and Kevin
Buckland in Tokyo; Editing by Richard Chang and Alistair Bell
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.