Dollar Slides as Rate Cut Bets Rise After Weak U.S. Data

The U.S. dollar dipped alongside Treasury yields on Friday after a string of weak economic data fueled expectations of more Federal Reserve interest rate cuts this year. Producer Price Index (PPI) data showed an unexpected decline in April, reinforcing earlier soft Consumer Price Index (CPI) readings. These signals have led markets to price in about 56 basis points of rate cuts by December, up from 49 bps the day before.

The dollar initially surged at the start of the week on optimism over a U.S.-China trade truce but later lost momentum. The biggest forex movement came from the U.S. dollar falling sharply against the South Korean won, dropping for two straight sessions to 1,394.70 won after reports of U.S.-South Korea discussions on currency matters. Analysts speculate that President Trump may be leaning toward a weaker dollar stance, pressuring Asian governments to let their currencies appreciate to balance trade dynamics.

Against a basket of major currencies, the dollar was down 0.1% at 100.70 but still on track for a 0.3% weekly gain thanks to Monday’s strong rally. The euro rose to $1.1197, and the British pound held steady at $1.3309. Meanwhile, the yen gained, pushing the dollar down 0.26% to 145.30.

Benchmark 10-year U.S. Treasury yields slipped further to 4.4413%, while two-year yields edged down to 3.9608%. Fed Chair Jerome Powell noted that inflation now takes priority over employment in shaping monetary policy, suggesting fewer rate cuts if inflation accelerates.

Elsewhere, the Australian dollar edged up to $0.6406, while the New Zealand dollar hovered at $0.5874, facing a weekly loss of over 0.5%. Japan’s yen gained after data showed its economy contracted more than expected in Q1, weighed by trade concerns.