Dollar Heads for Weekly Loss as Fed Hike Bets Fade

Dollar loses support as rate expectations shift

The dollar weakened on Friday, heading towards its first weekly loss against the euro and yen in more than a month, as investors scaled back expectations of another Federal Reserve interest-rate increase. Unease over artificial-intelligence investments added a second pressure point, with falling technology shares failing to produce the usual rush into the US currency.

According to Economic Times Markets, the dollar index, which tracks the greenback against six major currencies, slipped 0.17% to 101.87. It was on course for a weekly decline of 0.35%. These figures represent the report’s market snapshot, rather than final weekly closing prices.

The shift followed a volatile week for interest-rate expectations. Consumer and producer inflation readings initially came in above expectations, unsettling investors. Subsequent remarks from Federal Reserve officials suggested little urgency to tighten policy further, helping Treasury yields settle and reducing the dollar’s support.

An October hold gains ground, but December remains open

The CME FedWatch Tool put the probability of unchanged Federal Reserve rates later this month at 83%, compared with 49% a month earlier. That repricing points to greater confidence in an October pause, but it does not establish what the central bank will ultimately decide.

The report identified Kevin Warsh as Federal Reserve chair and said he spoke at the IMF–World Bank annual meetings in Bangkok on Friday. He offered no guidance on the next rate decision, saying he would not prejudge policy meetings.

John Velis, Americas macro strategist at BNY in New York, assessed support for an October increase as insufficient, particularly among the Fed’s governors. His assessment left December unresolved, with economic developments between now and then still capable of changing the debate.

The distinction matters for currency markets: a reduced likelihood of an immediate increase is not the same as a commitment to lower rates. This week’s dollar retreat reflected a change in expectations, not an announced policy move.

AI financing worries complicate the safe-haven trade

AI-related shares fell sharply during the week, and the strain extended into parts of the credit market. Investors were concerned that data-centre operators might not generate profits soon enough to meet their debt obligations, exposing crowded investments across the AI supply chain.

Those concerns were about future profitability and repayment capacity. The report did not identify a specific default or establish that the operators in question would fail to service their debts.

Matt Weller, global head of market research at StoneX in Michigan, highlighted the close connection between the dollar and the AI trade. He noted that a technology-stock selloff would ordinarily be expected to attract safe-haven demand for the greenback. This time, some defensive buying was appearing in bonds while the currency itself declined.

That divergence was a notable feature of the week: demand for perceived safety did not benefit all assets equally. The Swiss franc attracted defensive flows even as the dollar lost ground.

Sterling and franc lead; euro faces fiscal concerns

Sterling rose 0.31% to $1.3314, taking its weekly advance to 0.63%. The dollar fell 0.25% against the Swiss franc to 0.8246 francs, leaving it 0.67% lower for the week. The franc had strengthened by more than 1.4% over the latest two sessions.

Alongside safe-haven demand, the franc benefited from expectations that Switzerland would avoid taking policy rates below their current zero level, even in an environment of lower interest rates.

The euro gained 0.08% to $1.1227 and was heading for a weekly rise of 0.23%. It had climbed 0.56% on Thursday, its strongest daily increase in two months. Fiscal concerns in France nevertheless remained a background risk after an early-October increase in the premium investors demanded to hold French debt.

Against the yen, the dollar slipped 0.08% to 158.11. That put the Japanese currency on course for a 0.13% weekly gain after four consecutive weekly declines. Bank of Japan Governor Kazuo Ueda reiterated on Friday the risk that underlying inflation could exceed the central bank’s 2% target.

Analysis: For India, oil is the essential companion indicator

The report linked recent dollar strength to higher oil prices and the Iran conflict, while noting pressure on energy-importing economies’ currencies. It also described investor expectations that US President Donald Trump would avoid escalating conflicts in the Middle East or Ukraine before the midterm elections. That is a market expectation, not an assurance about US policy.

For India, an energy importer, the useful reading is to watch oil alongside the dollar rather than treat a weaker greenback as an unqualified benefit. Any currency-related relief to import costs can be offset by more expensive crude.

The source supplied no rupee exchange rate, Indian market reaction or domestic policy response, so it cannot establish an immediate gain for India. The next Fed decisions, AI-sector financing concerns and conflict-related oil movements remain the key uncertainties in this market picture.