Dollar drops with U.S. yields after data, set for fourth weekly rise vs euro
The dollar fell in tandem with U.S. Treasury yields on Friday after downside surprises on U.S. economic data this week cemented bets of more Federal Reserve rate cuts this year.
The greenback was on track for its fourth consecutive weekly gain versus the euro, recovering from the sharp decline that followed "Liberation Day" on April 2, when President Donald Trump announced aggressive trade duties.
A U.S.-China trade truce propelled the dollar higher on Monday, though the euphoria soon fizzled out as the U.S. currency dropped on Tuesday and Thursday after economic data.
"The dollar short-term rates relationship has loosened in the past two months, but the market's bearish U.S. dollar tendency means further dovish repricing could prove to be the catalyst for fresh dollar short building," said Francesco Pesole, rate strategist at ING, flagging that pricing for a Federal Reserve cut before September remains below 50%.
Markets are now indicating 59 basis points worth of Fed easing by December following Thursday's data, up from 49 bps previously. They also price in a 40% chance of a 25 bps rate cut by July.
The benchmark 10-year U.S. Treasury yield extended its 7 bps drop and was down 5 bps in London trading at 4.41%. The two-year yield fell 3.5 bps to 3.94%.
The euro rose 0.2% to $1.1209 and was on track to end the week down 0.34%.
The single currency ranked among the best performers in March after Germany announced massive investments, and again in April, after "Liberation Day," when concerns about the dollar's safe-haven status triggered a brief U.S. asset selloff.
The greenback was about to snap a three-week rising streak versus the yen. It dropped 0.45% and was on track for a weekly fall of 0.15%, after last week's downbeat GDP data in Japan and dovish remarks from a Bank of Japan policymaker.
"U.S. investors may wish to consider adding European and Japanese equities and bonds with lower or zero hedging, even though it would mean giving up some income from interest-rate differentials," said Jeff Blazek, co-CIO multi-asset strategies at Neuberger Berman.
"There is potential for another 3-5% of (dollar) weakening against the euro and yen this year," he added.
Investors also had their eye on potential talks between Tokyo and Washington next week, where Japanese Finance Minister Katsunobu Kato said he would seek to discuss foreign exchange issues with U.S. Treasury Secretary Scott Bessent.
Most of the action in the foreign exchange market came from the dollar's moves against the South Korean won, where it fell sharply for a second straight day on news that Washington and Seoul discussed the dollar/won market earlier this month.
The moves were reminiscent of a similar episode in the Taiwan dollar earlier this month.
The dollar last traded 0.31% lower at 1,391 won.
Against a basket of currencies, the dollar fell 0.2% to 100.51, though was on track for a slight weekly gain thanks to its sharp 1.3% rise on Monday.
In Australia, the Aussie rose 0.30% to $0.6426, while the New Zealand dollar gained 0.65% to $0.5913.
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