The dollar index slipped to 103.7 on Friday, ending a two-day winning streak and remaining on track for a flat weekly performance as traders continued to assess the ongoing trade war and its potential impact on the US economy.
Dollar falls slightly on Friday
While inflationary pressures have yet to emerge, uncertainty is weighing on consumer sentiment, with the University of Michigan’s consumer sentiment index sinking to its lowest level since 2022. A cautious economic outlook, coupled with geopolitical tensions, has kept investors on edge, influencing demand for safe-haven assets.
Meanwhile, market optimism improved as lawmakers in Washington moved closer to preventing a government shutdown, with Senate Minority Leader Chuck Schumer voicing support for a GOP stopgap bill to extend funding. The prospect of avoiding a fiscal crisis provided some relief to markets, contributing to a slight rebound in risk appetite.
Eyes on next week Fed meeting
Looking ahead, investors await the Federal Open Market Committee’s (FOMC) decision next week, where the Federal Reserve is widely expected to keep interest rates unchanged. However, market participants will closely scrutinize the central bank’s updated economic projections and policy guidance for any signals on the future path of monetary policy. Fed Chair Jerome Powell’s remarks will be particularly pivotal in shaping expectations, as markets currently price in two quarter-point rate cuts this year. Any deviations from these expectations could lead to heightened volatility across currency, bond, and equity markets.
