Dollar edges lower; weekly loss looms on dovish Fed

By Peter Nurse

Investing.com – The U.S. dollar edged lower in early European trade Friday, on course to post a weekly loss on dovish signals from the Federal Reserve.

At 02:55 ET (07:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.1% to 105.840, down more than 1% for the week and close to its three-month low of 105.30 hit last week.

The dollar has struggled of late as expectations of a less aggressive pace of U.S. monetary tightening as soon as next month saw U.S. Treasury yields sink to seven-week lows earlier Friday.

“The Fed minutes surprised on the dovish side, signaling strong support for slower rate hikes and weaker support for Powell’s higher-for-longer rhetoric,” said analysts at ING, in a note. “The dollar could stay pressured for a bit longer, but it’s probably embedding a good deal of Fed-related negatives now.”

Activity is likely to be limited Friday, with traders taking advantage of Thursday’s U.S. Thanksgiving holiday to enjoy a long weekend, and attention will quickly shift to next week and the release of U.S. jobs and growth data for interest rate implications.

EUR/USD rose 0.1% to 1.0418, approaching the four-month high of 1.0481 hit last week, helped by data showing Germany’s economy grew by a little more than initially thought in the third quarter.

German gross domestic product expanded by 0.4%, rather than the 0.3% reported in its first reading. That left GDP up 1.2% from a year earlier, rather than the 1.1% in the first reading.

Additionally, market research firm GfK said German consumer confidence posted a second straight improvement for December, while remaining close to an all-time low at -40.2.

GBP/USD fell 0.2% lower to 1.2087, but is still close to the three-month high of 1.2153 hit in the previous session with the pair on track for a near 2% weekly gain.

USD/JPY rose 0.2% to 138.81, after data showed inflation in Tokyo reached a 40-year high in November, heralding more inflationary pressures for the country.

The risk-sensitive AUD/USD rose 0.1% to 0.6765, NZD/USD slipped 0.1% to 0.6257, while USD/CNY rose 0.1% to 7.1574 with the yuan weakening as the Chinese economy struggles with a record-high jump in daily COVID-19 cases, which saw the reintroduction of strict curbs in several major cities.