As attention shifted to the forthcoming week full of central bank meetings, the dollar began to decline on Friday, being pulled down by falling U.S. Treasury yields following a surge in weekly unemployment claims that reinforced expectations of a near-term peak in US interest rates.
Data released on Thursday showed that last week saw a sharp increase in the amount of Americans requesting new unemployment benefits, reaching its highest level in over 1-1/2 years. However, given that the data encompassed the Memorial Day vacation, which would have introduced some volatility, it is likely that layoffs are not escalating.
However, it was enough to cause the US dollar to drop against a group of currencies to a level that was greater than two weeks low during the prior session, as buyers interpreted the data as an indicator that the US labor market was stalling.
In Friday's Asian trading, the dollar index was last trading at 103.41 after falling more than 0.7% the day before, the most in recent weeks.
The index, which compares the value of the dollar to six significant rivals, dropped 0.6% over the week, making this the weakest week since mid-March.
As US Treasury yields fell, the dollar fell to a one-week bottom of 138.765 against Japanese yen. The price per dollar was 139.27.
The benchmark ten-year Treasury yield last traded at 3.7317%, down 7 basis points from Thursday's close. The two-year yield, which normally changes along with forecasts for interest rates, remained constant at 4.5261%.
The United States, like many other economies, is likely to experience a brief economic downturn this year. So, according to Kiwibank Chief Economist Jarrod Kerr, that will be reflected in payroll, unemployment claims, and other types of figures.
The kiwi fell 0.11% to $0.6089 as sterling reached a level that was almost a month high at $1.2564.
Following the appointment of Hafize Gaye Erkan, a finance professional in the US, as the next head of Turkey's central bank, the Turkish lira plunged over 1% versus the dollar reaching a record-low level of 23.54.
Given the considerably reduced foreign exchange holdings and 40% inflation, Mohammed Elmi, a senior manager of portfolios for emerging-market fixed income at Federated Hermes, stated that a return towards policy orthodoxy looks inevitable.
The Federal Reserve, European Central Bank, and Bank of Japan will each publish interest rate announcements following their individual policy discussions in the week ahead, which is now the focus of the markets.
Money markets tend to lean towards a pause while the Fed takes center stage, but they've priced in a 25% possibility that the Fed would announce a 25 basis point rate hike.
Guillermo Felices, a global investments strategist from PGIM Fixed Income, stated that the US economy is slowing, which allows the Fed to take a break after 500 basis points of consecutive interest rate increases.
The Fed's decision to forego an increase in June and continue its tightening action in July is the main uncertainty facing the markets.
While this is happening, the vast majority of analysts predict that the ECB will increase its benchmark interest rates by 25 basis points on the 15th of June and once more in July before resting for the remainder of the year as long as inflation stays sticky.
The euro last fluctuated between $1.0776 and $1.0787, which was a two-week high reached on Thursday. The euro is on pace to end a four-week losing trend after rising 0.6% for the week.
The Canadian dollar latest exchanged hands for C$1.3371, which is not far from its C$1.3321 one-month peak set on Wednesday, whilst the Australian dollar was trading close to its $0.6711 one-month high.
Both currencies have benefited from unexpected rate hikes by the central banks of each country this week, which led the markets to reevaluate their predictions for a peak in worldwide interest rates.
The Chinese yuan declined as investors' worries about the country's shaky economic recovery increased as factory gate deflation continued to worsen.