Dollar fell in European trade on Friday against a basket of major rivals, extending losses for the second straight day under pressure from the tumble in US 10-year treasury yields.
The developments came despite the bullish Federal Reserve’s meeting this week, which trimmed the odds for a Fed rate cut in March.
Now investors await the important UK payrolls report later today, which will provide important clues about the health of the US labor sector.
The Index
The dollar index fell 0.15% to 102.94, with a session-high at 103.07, after closing down 0.5% on Thursday, the largest loss in 2024 as US yields tumble as well.
US Yields
US 10-year treasury yields fell by over 7.5% this week, hitting five-week lows at 3.817% and pressuring dollar.
The decline came growing concerns about US regional banks after the surprise loss by New York Community Bancorp Bank.
Analysts said that Community Bancorp crisis this week renewed concerns once more about US regional banks and boosted demand on US treasuries, hurting yields.
The Fed
The Federal Reserve held interest rates flat as expected this week at below 5.5%, already the highest since 2001.
The Fed said the US economy is performing better than expected, which convinces the Fed to slow down when it comes to changing its monetary policy, especially as achieving the 2% inflation target takes more time.
Fed Chair Jerome Powell said on Wednesday that FOMC members are committed to bringing inflation back to the 2% target, noting the strength of the economy, which would allow for a rate cut “sometime”.
Powell said the strength of the US economy surprised analysts more than once due to strong consumer demand, with the labor sector heading for a better balance overall.
US Rates
Following the meeting, the odds for a 0.25% Fed interest rate cut in March tumbled from 52% to 35%, down from over 80% just a month ago.
Traders now expect a total of 140 basis points of interest rate cuts in the US throughout 2024, down from 160 basis points in previous forecasts.
US Payrolls Report
The US economy is expected to have added 187 thousand new jobs last month, down from 216 thousand in December, while unemployment is expected up to 3.8% from 3.7%, as average hourly earnings are expected up 0.3%.
Obviously, strong results will hurt the odds of an early rate cut in March, underpinning the dollar and US treasury yields, and vice versa.
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