US Dollar Heads for Biggest Weekly Loss in a Year
The US dollar is heading for its biggest weekly loss in a year, pulling back from a sharp run-up fueled by speculation that Donald Trump’s policies will push the currency higher.
Dollar’s Retreat
Bloomberg’s gauge of the currency slipped 0.4% on Friday, extending the week’s decline to 1.3%. The yen was the biggest beneficiary, advancing 3.5% against the greenback this week, as bets grow on the Bank of Japan raising interest rates next month.
Analyst Insights
"The dollar was overdue for a consolidation after the Trump election euphoria sent it higher and into over-extended territory," said Brad Bechtel, global head of FX at Jefferies. "The euro, yen, and pound had all traded well below where real rate differentials implied for fair value against the dollar, and that has finally started to correct."
Trump’s Nomination
Some of the pullback for the dollar came after Trump announced the nomination of hedge-fund veteran Scott Bessent as Treasury Secretary, a choice that was seen as promising a more traditional approach toward economic policy. Much of the dollar’s jump has reflected expectations that Trump would upend the Federal Reserve’s rate-cutting path by enacting steep tariffs that would reignite inflation.
Currency Movement
The euro rose 1.6% this week, bouncing back after hitting the lowest in two years last Friday. The yen gained as much as 1.4% on Friday to 149.47 per US dollar after Bank of Japan Governor Kazuo Ueda said rate hikes are "nearing" in a Nikkei interview published Saturday in Tokyo. The yen got an earlier boost from Tokyo inflation accelerating more than expected in November, increasing speculation over a possible December rate hike.
Month-End Flows and Trader Behavior
Month-end flows are also weighing on the dollar, as well as traders cutting their bets on the greenback further advances, according to Helen Given, a foreign-exchange trader at Monex. "Traders have spent the last month going long dollar against the Group-of-10 currencies on election risks and news from the incoming administration," Given said. "Now they see the actual nominations and curtail their long dollar bets."
Speculative Traders
Speculative traders boosted their bets on dollar gains in the week ending November 19 to the most bullish level since late June, Commodity Futures Trading Commission (CFTC) data show. They switched to long dollar bets mid-October. The CFTC will report new data Monday.
Conclusions
The US dollar is experiencing a significant pullback, with the potential for further declines in the short term. The yen and euro are gaining traction, while the pound is also showing signs of recovery. As the market adjusts to the new administration, it is likely that the dollar will continue to experience fluctuations.
FAQs
Q: What is driving the dollar’s pullback?
A: The dollar’s pullback is being driven by a combination of factors, including the nomination of Scott Bessent as Treasury Secretary and the market’s adjustment to the new administration.
Q: What is the current state of the dollar?
A: The dollar is experiencing a significant pullback, with a weekly decline of 1.3%.
Q: How are other currencies performing?
A: The yen is the biggest beneficiary, advancing 3.5% against the greenback this week, while the euro rose 1.6% and the pound is also showing signs of recovery.