Dollar stuck at 32-month low as Fed rate hike outlook sours

© Reuters. – The dollar remained at more than two-and-a-half year lows on Friday amid a fall in expectations that the Federal Reserve will hike rates this year while the euro continued its trend higher following the European Central Bank meeting on Thursday.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell by 0.25% to 91.26.

The dollar was on track to the post its biggest weekly loss since June as concerns over geopolitical uncertainty, Hurricane Irma and falling expectations of U.S. monetary policy tightening weighed on sentiment.

Safe haven currencies like the yen and Swiss franc gained against the dollar as geopolitical uncertainty on the Korean peninsula is expected to renew amid fears that North Korea may launch another missile on Saturday as the country celebrates its 69th anniversary of the founding of the Democratic People’s Republic of Korea.

USD/JPY fell 0.58% while USD/CHF lost 0.44% to 0.9465.

Fears over renewed geopolitical tensions between the U.S. and North Korea come amid a sharp drop in U.S. treasuries after a slew of dovish comments from Fed officials dampened expectations of a Federal Reserve rate hike this year, piling pressure on the greenback.

New York Fed President William Dudley, however, reiterated on Thursday that the central bank should continue to gradually raise U.S. interest rates as low inflation should rebound.

Meanwhile, the euro continued its recent climb higher against the greenback, following European Central Bank president Mario Draghi’s speech on Thursday, in which he reaffirmed that policymakers will decide on tapering monetary policy stimulus in October.

EUR/USD jumped 0.07% to $1.2031 while EUR/GBP lost 0.62% to £0.9120.

GBP/USD rose 0.62% to $1.3192, as data showed both manufacturing and industrial growth remained solid in July.

USD/CAD gained 0.16% to C$1.2138.

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