Dollar Down to One-Month Low as Bets on Quick Fed Tightening Increase

© Reuters.

By Gina Lee

Investing.com – The dollar was down on Friday morning in Asia. The U.S. currency fell to a one-month low, with investors lowering U.S. Federal Reserve interest rate hike expectations and signs that the central bank could slow or even pause its tightening cycle in the second half of 2022.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies was down 0.34% to 101.32 by 12:28 AM ET (4:28 AM GMT).

The USD/JPY pair was down 0.22% to 126.86.

The AUD/USD pair rose 0.63% to 0.7143 and the NZD/USD pair rose 0.70% to 0.6522.

The USD/CNY pair inched down 0.08% to 6.7335 and the GBP/USD pair gained 0.48% to 1.2655.

The dollar index fell as low as 101.43 for the first time since April 25, 2022, and was set for a 1.5% drop for the week, following the previous week's 1.37% fall. This would be the first two-week decline since the turn of the year. Friday’s rally in Asia Pacific stocks also saw investors retreat from the safe-haven dollar.

The U.S. currency also fell against the euro to its weakest level since April 25 at $1. 0765. It also fell to the lowest level against the pound since Apr. 26, 2022.

The dollar’s loss was the risk-sensitive Antipodean currencies' gain, with the Australian and New Zealand dollars both on an upward trend.

The greenback hit a nearly two-decade peak above the 105 mark in the middle of the month but retreated amid signs that the Fed’s tightening of its monetary policy could already be slowing economic growth. U.S. Treasury yields have also fallen from multi-year highs, which further undermined the dollar.

The dollar weakened against the yen, falling gradually over the space of three weeks from a two-decade high of 131.35.

"U.S. inflation expectations have been coming off, so that's contributed to fading expectations for Fed tightening, which has weighed on the dollar, particularly dollar-yen, which is quite sensitive to yield differentials," Barclays (LON:BARC) senior FX strategist Shinichiro Kadota told Reuters.

"I think USD-JPY has peaked for now, but medium-term it will depend on inflation."

The minutes from the Fed's latest meeting, released earlier in the week, showed that most participants believed 50 basis-point hikes would be appropriate at the June and July 2022 policy meetings. However, many policymakers thought big, early interest hikes would allow room to pause later in 2022 to assess the effects of that policy tightening.

In cryptocurrencies, better risk sentiment did not help bitcoin, which slipped 0.9% to around the $28,908 mark and continued the week's gradual decline from $30,000.