US dollar on track for largest weekly loss in 7M

The US dollar weakened against most of its peers earlier on Friday, with trade dispute worries receding in the background and emerging economy central banks taking measures to stabilise their currencies.

In early trading, the US dollar index, which traces the greenback against six major rivals, slipped 0.1% to 93.82, hitting the lowest bottom in around three months, while the US currency is set to record its largest weekly drop since early February.

Nevertheless, by 10:34 am GMT, the index went 0.17% to 94.06.

A sell-off in the greenback in the late European trading on Thursday picked up momentum overnight as investors raised bets that the US Federal Reserve is closing to the end of its multi-year rate hike cycle after it would raise rates the week ahead.

“The weakness in the dollar is prompting investors to unwind their short bets against other currencies such as the euro and this move may have further room to run,” London-based Credit Agricole currency strategist Manuel Oliveri told Thomson Reuters.

On Wednesday, Prime Minister Li Keqiang vowed that China would not engage in competitive currency devaluation, one day after Beijing and Washington went further with their trade row with more tit-for-tat tariffs.

Moreover, a day earlier, US President Donald Trump announced that the US could possibly make a deal at some point with China, leaving the door open for Beijing to negotiate an end to the trade war.

Investors were gravitated towards the euro (EUR), pushing the single currency to the $1.18 mark for the first time in over three months, and taking its weekly gains to around 1.5%.

By 10:49 am GMT, the EUR/USD pair went down 0.07% to $1.1769.

“This is textbook risk-on behavior in the markets and though it is hard to find an immediate catalyst, falling trade conflict concerns and improvement in emerging market sentiment has helped,” Smart Currency Business senior currency consultant told Thomson Reuters.

Amid a recovery in the emerging market currencies such as the Turkish lira (TRY) and South African rand (ZAR), MSCI’s emerging market currency index rose 0.4% to its highest level seen since the end of last August.

The only loser against the greenback was the sterling pound (GBP), losing 0.4% to $1.3217 on concerns over the UK’s departure from the European Union (EU).

By 10:49 am GMT, the GBP/USD pair fell 0.58% to $1.3188.