Dollar Set for Worst Week Since June on Fed Bets, Bank Woes

(Bloomberg) — The dollar (DX=F) fell for a fourth day, putting it on track for its biggest weekly drop in more than three months, amid dovish signals from Federal Reserve officials and fresh worries over US regional banks.

The Bloomberg Dollar Spot Index extended its weekly decline to 0.7%, its worst run since June, while Treasury two-year yields dropped to a six-week low. Traders boosted bets on Fed easing, and are now pricing 53 basis points of cuts by year-end versus 46 on Wednesday.

ICE Futures•USD

(DX-Y.NYB)

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98.20

-0.13

(-0.13%)

As of 3:33:59 AM EDT. Market Open. Advanced Chart

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Fed Governor Christopher Waller said Thursday that officials can keep lowering interest rates in quarter-percentage-point increments to support a faltering labor market. Governor Stephen Miran, meanwhile, reiterated his view that a move twice that size would be appropriate this month.

Even with the US government shutdown in its third week with little sign of resolution and a dearth of economic data, the Fed commentary spurred investors to add dovish exposure.

“The lack of economic data does not seem to be a problem for the Fed and we expect another 25-basis-point rate reduction at the October meeting,” Morgan Stanley economists led by Michael Gapen said in a note.

The dollar also softened as shares of regional lenders slumped on lending-standards concerns, and as political risks in Japan and France eased.

In options, near-term sentiment has turned more bearish over the next week, even as positioning still leans toward a stronger dollar into year-end.

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