Dollar Caps Worst Week Since August on Fed Bets, Bank Woes

Core Viewpoint - The US dollar is experiencing its worst week in over two months due to expectations of Federal Reserve interest-rate cuts and emerging credit risks in the US banking sector [1]. Group 1: Dollar Performance - The Bloomberg Dollar Spot Index is on track to lose approximately 0.4% since Monday's open, marking the largest weekly decline since August [2]. - Policy-sensitive two-year Treasury yields are trading near a three-year low, with traders now pricing in about 51 basis points of rate reductions by December, an increase from 46 basis points earlier in the week [2]. Group 2: Federal Reserve Insights - Fed Governor Christopher Waller indicated that officials could continue to lower interest rates in quarter-percentage-point increments to support a weakening labor market [3]. - Governor Stephen Miran suggested that a larger rate cut could be appropriate this month, highlighting differing views within the Fed [3]. Group 3: Market Sentiment and Risks - Volatile sentiment and headline risks are contributing to erratic trading in the dollar, with notable slippage as investors anticipate easier Fed policy and less supportive yield differentials [4]. - Political risks in Japan and France have eased, while ongoing trade tensions between the US and China continue to impact market dynamics [5]. - Increased scrutiny of US regional banks is affecting both equities and the dollar, compounded by a dovish Fed repricing and falling oil prices [6]. Group 4: Trade Relations - US President Donald Trump stated that the high tariff rates against China are "not sustainable," indicating potential shifts in trade policy [7]. - US Treasury Secretary Scott Bessent is scheduled to discuss trade negotiations with Chinese Vice Premier He Lifeng, reflecting ongoing efforts to address trade tensions [7].