The dollar index fell to 101.6 on Friday, its lowest level in two weeks, and was down about 0.4% for the week, marking its first weekly decline after three consecutive weeks of gains. The greenback came under pressure as concerns over AI-related spending in a high interest rate environment weighed on risk appetite and prompted a flight to safety early in the week, pushing equities, bond yields, and the dollar lower.
On the data front, stronger-than-expected US CPI and PPI readings reinforced signs of mounting inflationary pressures. Money markets are now pricing in roughly an 85% probability that rates will be left unchanged in October, alongside nearly a 77% chance of a 25bps hike in December. Comments from Fed Chair Warsh at the IMF summit further supported expectations for a pause in October. Warsh declined to indicate whether another rate increase was actively being considered, but noted that the hotter-than-expected inflation data had not changed his overall assessment of the US economy.
