Dollar stumbles as rate path fuels recession worries

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TOKYO: The US dollar slid against its major peers on Friday, on track for its first weekly decline this month as investors assess the Federal Reserve’s policy trajectory and whether aggressive rate hikes would trigger a recession .

The dollar index, which measures the greenback against six rivals, edged down 0.07% to 104.33 in the Asian morning. It fell after rising 0.19% the day before, mainly due to a drop in the euro after weak data on European factories reduced bets on the European Central Bank’s tightening.

Dollar trading has been choppy this week, with markets now betting on more cautious policy action from the Fed after another expected rate hike of 75 basis points in July.

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Fed Governor Michelle Bowman said on Thursday she supported 50 basis point hikes for the “next” meetings after those in July. Meanwhile, Fed Chairman Jerome Powell, in his second day of congressional testimony, stressed the central bank’s “unconditional” commitment to controlling inflation, even amid risks to growth.

Recession fears tamed Treasury yields, removing key support for the dollar, with that of the 10-year note slipping to a two-week low overnight.

Against the yen, which is extremely sensitive to changes in US yields, the dollar eased 0.1% to 134.795. For the week, it’s down by roughly the same amount and is expected to break a three-week winning streak of 6.19%.

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The euro rose 0.11% to $1.0533, but fell 0.44% overnight after weaker than expected German and French PMI figures.

Germany also triggered the “alarm phase” of its emergency gas plan on Thursday in response to dwindling Russian supplies.

“The market has started to cut prices by a reasonable amount for the next two ECB meetings,” National Australia Bank interest rate strategist Ken Crompton said in a podcast.

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“There were a couple of factors there that really added up, that really started to question how far the ECB can go in its tightening.”

For the week however, the euro remains up 0.44% against the dollar.

The pound rebounded 0.16% to $1.2281, putting it on track for a weekly 0.5% rise that would end a three-week losing streak.

The Australian dollar rose 0.13% to $0.6904 but was still forecast for a weekly decline of 0.48%, its third consecutive week of declines.

(Editing by Jacqueline Wong)

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