Dollar Set for First Weekly Loss in Over a Month as Fed Rate Hike Bets Fade

By Laura Matthews and Stefano Rebaudo

The U.S. dollar weakened on Friday and was on track for its first weekly decline in more than a month against the euro and the Japanese yen. Investors scaled back expectations for another Federal Reserve rate hike despite hotter inflation readings, while a selloff in artificial-intelligence shares weighed on sentiment.

Fed bets and inflation

Hotter-than-expected consumer and producer price readings initially unsettled markets. Comments from Federal Reserve officials suggesting there was no urgency to tighten policy further helped stabilise Treasury yields and reduced support for the dollar. Markets assigned an 85% probability to the Fed leaving rates unchanged later in October.

AI selloff adds pressure

AI-related shares fell sharply during the week, with concerns spreading into parts of the credit market. Investors questioned whether data-centre operators would become profitable quickly enough to service their debts.

Currency moves

The dollar index fell 0.42% to 101.61 and was set for a 0.6% weekly decline. Sterling rose 0.60% to $1.3353 and was up 0.92% for the week. The Swiss franc also strengthened, supported by safe-haven demand. The euro rose 0.33% to $1.1255, putting it on track for a 0.48% weekly gain, although French fiscal risks remained in focus. The dollar slipped 0.12% against the yen to 157.79, leaving the yen on course for a 0.33% weekly rise.

Bank of Japan Governor Kazuo Ueda reiterated the risk that underlying inflation could overshoot the central bank's 2% target.