The US dollar weakened on Friday, ending a four-week winning streak as falling Treasury yields and cautious remarks from Federal Reserve Chair Kevin Warsh overshadowed stronger-than-expected US inflation data. Meanwhile, the euro recovered, while Asian currencies experienced mixed performances.
The US Dollar Index (DXY), which measures the greenback against six major currencies, declined 0.3% to 101.79, bringing its weekly loss to 0.4%.
Currency markets remained focused on Federal Reserve interest rate expectations following September's inflation reports. US headline consumer price inflation rose 3.7% annually, while core CPI increased 2.6%. Energy prices surged 20.4% year-over-year, contributing significantly to inflationary pressures.
Meanwhile, the Producer Price Index climbed 6.3% annually, its sharpest increase since December 2022.
Despite these figures, expectations for an October Fed rate hike weakened after Warsh avoided signaling further monetary tightening during an International Monetary Fund and World Bank forum in Bangkok.
According to CME FedWatch, the probability of a 25-basis-point rate increase dropped to approximately 17% from nearly 28% the previous day.
Macquarie strategist Thierry Wizman suggested Warsh's absence of hawkish commentary indicated the Fed might hold interest rates steady later this month.
Additionally, growing concerns about corporate borrowing to finance artificial intelligence infrastructure boosted demand for US Treasury bonds, pushing yields lower and reducing support for the dollar.
In Europe, the euro gained 0.2% on Friday, securing its first weekly advance in six weeks after recovering from a 17-month low. European Central Bank President Christine Lagarde maintained that France must address its budget deficit, equivalent to 5.4% of GDP, domestically.
Asian foreign exchange markets showed contrasting trends.
The Indonesian rupiah weakened to 18,064.9 per dollar after MSCI proposed downgrading Indonesia from Emerging Market to Standalone Market status over investment accessibility and governance concerns.
The announcement triggered an 11% plunge in Jakarta's benchmark stock index, raising concerns about potential foreign capital outflows.
Meanwhile, the Indian rupee slipped to 95.237 per dollar on Friday but recorded its strongest weekly performance since early April.
The Reserve Bank of India's intervention measures, including a dedicated dollar-supply facility for state-run oil companies and tighter foreign exchange derivative restrictions, helped support the currency.
However, the measures also disrupted forward market liquidity and increased hedging costs for importers.
Clarify Warsh’s Fed roleTighten the inflation explanation.
