NEW YORK: The dollar slipped against a basket of currencies on Friday as investors continued to unload long positions that benefited from an increase in bets that the Federal Reserve will raise rates sooner than previously expected. The greenback also faced seasonal weakness that is typical in late October.
Investors have taken profits since the dollar index hit a one-year high last week, when concerns that inflation will remain stubbornly high for longer led investors to bring forward expectations on when the Fed will first raise rates to mid-2022.
That repricing momentum has now faded as investors take profits and also build expectations for sooner rate increases in other currencies. "There's a bit of a positioning unwind taking place, we've obviously seen a firmer dollar since the September Fed," said Mazen Issa, senior fx strategist at TD Securities in New York. "That also dovetails with the seasonal tendency for the dollar to soften into the end of the month."
The Fed said at its September meeting that it will likely begin reducing its monthly bond purchases as soon as November and signaled interest rate increases may follow more quickly than expected. The dollar index fell 0.17% to 93.57, and is down from a one-year high of 94.56 last week. The euro gained 0.18% to $1.1646.
Issa expects the dollar to regain traction as global central banks push back against the aggressive repricing of rate hikes, while the Fed is likely to remain relatively hawkish and move forward with a reduction in its bond purchase program. "Once we get the pushback from other central banks and the Fed's committed to taper we should see dollar dips really being shallow," Issa said.
The Aussie dollar outperformed on Friday, gaining 0.43% to $0.7498. The yen gained against the greenback, though it remains the weakest performer having dropped by more than 10% this year. The dollar was last down 0.19% against the Japanese currency at 113.77 yen.
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