Investing.com -- The U.S. dollar on Friday snapped a four-week winning streak, as a safe-haven rally in the Treasury bond market and remarks from Federal Reserve Chair Kevin Warsh outweighed significantly hotter-than-expected inflation reports.
The dollar's decline has helped the euro this week, with the single currency halting a five-week losing run. In Asia, the Indonesian rupiah saw a notable move, while the Indian rupee notched its best week since early April.
The U.S. dollar index, which tracks the greenback against a basket of six major peers, slipped 0.3% to 101.79. For the week, the gauge dropped 0.4%.
Roller-coaster week for Fed rate hike odds
Currency market participants this week have been focused on the Fed's future monetary policy path after receiving key inflation reports. The headline and core U.S. consumer price index (CPI) logged an annual advance of 3.7% and 2.6%, respectively, in September, with the headline figure driven by a 20.4% Y/Y surge in the index for energy prices.
The Fed has a long-term inflation target of 2%, though it prefers to track the personal consumption expenditures price index to gauge price pressures.
Meanwhile, the headline U.S. producer price index (PPI) climbed 6.3% Y/Y in September, marking the largest Y/Y increase since December 2022.
Odds of the Federal Open Market Committee (FOMC) delivering a quarter-point rate hike later this month rose after the CPI and PPI reports, but they were tempered on Friday after Fed Chair Warsh spoke at a forum in Bangkok at the annual meetings of the International Monetary Fund and the World Bank Group.
Warsh said persistent inflation remained a common challenge for policymakers around the world, although he argued that the global economy had shown greater resilience than he expected. He also said the Fed removed some monetary policy accommodation at its September meeting, but declined to signal its next policy move.
"Warsh didn't delve into the monetary policy outlook, apart from reiterating that the Fed will deliver price stability. But the lack of a 'hawkish' tone - especially coming after the high-side U.S. CPI and PPI reports for September - was to taken to mean that there won't be a Fed rate hike in late October," Thierry Wizman, global FX and rates strategist at Macquarie, said.
As per the CME FedWatch tool, the probability of the FOMC raising rates later this month now stands at around 17%, down from nearly 28% the previous day. Lower rate environments tend to weaken the dollar.
Also helping the greenback this week was a big rally in the U.S. bond market on Thursday, which led to a slide in Treasury yields. Even though bonds have been highly unfavorable for investors recently, growing concerns over the massive amounts of debt being issued by companies to fund their artificial intelligence infrastructure buildouts has led to government debt regaining their status as safe-haven assets.
Euro secures first weekly advance in six
Across the Atlantic, the euro rose 0.2% on Friday, bouncing back from a 17-month low hit earlier in the week.
The advance gave the single currency its first weekly gain in six weeks. While European Central Bank President Christine Lagarde reiterated that Parisian lawmakers must resolve France's 5.4% GDP budget deficit internally, the absence of fresh monetary dilution offered fundamental backing to the single currency.
Indonesian rupiah tumbles, Indian rupee outperforms
Over in Asia, the Indonesian rupiah slumped to 18,064.9 a dollar. The slide was triggered after global index provider MSCI proposed downgrading Indonesia from "Emerging Market" to "Standalone Market" status over persistent concerns tied to investing ability and governance.
The announcement sent the Jakarta Composite Index plummeting 11% - its worst single-day plunge since the 1998 Asian Financial Crisis - to a six-year low.
For markets, inclusion in major global benchmark suites like the MSCI Emerging Markets Index is a vital conduit for foreign capital inflows.
Because hundreds of billions of dollars in passive institutional funds and exchange-traded products strictly track these indices, a formal downgrade would mechanically force asset managers to liquidate their Indonesian holdings.
Meanwhile, the Indian rupee weakened on Friday to 95.237 a dollar, but notched its best weekly performance since early April.
The rally driven by aggressive intervention measures from the Reserve Bank of India (RBI). To curb speculative short-selling and dollar hoarding, the RBI opened a dedicated dollar-supply window for state-run oil marketing companies and introduced tighter restrictions on non-underlying forex derivative contracts.
While the central bank's actions successfully squeezed corporate spot dollar demand, trading desks noted that the new reserve requirements briefly disrupted forward market liquidity and elevated hedging costs for importers.
Ayushman Ojha, Scott Kanowsky, and Pranav Kashyap contributed to this article
Original Article
U.S. dollar snaps four-week win streak, helping the euro halt a five-week slide
U.S. yields fall for the week as AI debt jitters drive traders to safe-haven bonds
CIBC warns of inflation risks as 'leaky loonie' faces further slide
