The euro dropped to its lowest level in five months on Friday after the European Central Bank signalled it could soon cut rates even with a hot U.S. economy likely forcing the Federal Reserve to hold fire until later in the year. The ECB signalled it was still likely to start cutting rates in the summer, given that inflation has fallen more sharply in the single-currency bloc. The euro dropped to $1.0644 and was last down 0.67%, just above that level. It was on track to have fallen 1.5% since Monday, its biggest weekly drop since September 2022.
Sterling fell to a five-month low on Friday even as data showed the British economy was on course to exit its shallow recession, with all major currencies coming under pressure from a dominant dollar. The pound was down 0.48% at $1.249, the lowest since mid-November. It was heading for a weekly loss of 1.1%, after hot U.S. inflation data this week slashed Federal Reserve easing expectations, boosting U.S. bond yields and the dollar. Britain’s economic output grew by 0.1% in monthly terms in February, in line with forecasts, while January’s reading was revised higher, pointing to an exit from recession in early 2024.
The dollar steadied against the Swiss franc on Friday as bets the U.S. Federal Reserve would keep interest rates high boosted the greenback. A hot U.S. inflation print on Wednesday caused investors to rapidly rein in their bets on Fed rate cuts this year, moving the estimated start date from June to September. Fed officials, by contrast, said on Thursday there was no urgency to ease. Boston Fed President Susan Collins commented that the strength of the economy and an uneven retreat in inflation argued against a near-term push to lower rates. The dollar index rose 0.5% on Friday to 105.82, taking the U.S. currency’s weekly gain against a basket of major peers to 1.5%.
The dollar dipped against yen on Friday as the threat of currency intervention by Japanese authorities appeared to keep the yen steadier than other currencies. Japanese Finance Minister Shunichi Suzuki said authorities were analysing not just recent yen declines but factors that are driving the moves, and repeated that Tokyo stood ready to respond to any excessive currency swings. Suzuki said finance leaders from the Group of 20 major economies, who will meet in Washington D.C. next week on the sidelines of the spring International Monetary Fund (IMF) gatherings, may discuss currency moves as part of topics for debate. After hitting a fresh 34-year high of 153.32 yen overnight, the dollar stood at 152.19 yen on Friday. The Japanese currency has tumbled almost 8% against the dollar since the beginning of the year.
