The U.S. dollar retreated on Friday, tracking a decline in Treasury yields after a week filled with disappointing U.S. economic data, reinforcing expectations for multiple Federal Reserve rate cuts in 2025.
The greenback had initially risen earlier in the week, buoyed by a temporary U.S.-China trade truce. However, that optimism faded quickly, and the dollar struggled to regain momentum amid mixed global sentiment and increasing speculation over U.S. currency policy.
Dollar Slides Against Korean Won Amid Policy Speculation
The most notable move was seen in the dollar’s sharp two-day decline against the South Korean won, dropping 0.14% to 1,394.70. This followed reports that Washington and Seoul discussed the dollar/won market earlier this month, fueling speculation that the U.S. may be softening its stance on a strong dollar.
“Speculation is once again mounting that President Trump favours a weaker dollar,” said George Vessey, Lead FX & Macro Strategist at Convera. “This could pressure other governments to allow their currencies to appreciate in trade negotiations.”
Economic Data Paints a Soft Picture
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U.S. Producer Price Index (PPI) unexpectedly fell in April.
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Earlier in the week, Consumer Price Index (CPI) data showed weaker-than-expected inflation.
These indicators confirmed market expectations that the Federal Reserve will ease rates at least twice this year. Markets are now pricing in 56 basis points of cuts by December, up from 49 bps just a day earlier.
Powell Signals Shift in Fed Policy Focus
On Thursday, Fed Chair Jerome Powell stated that the FOMC will place greater emphasis on inflation over employment when setting policy. This suggests the Fed may be slower to cut rates if inflation risks persist.
“We forecast three FOMC interest rate cuts this year,” said Kristina Clifton, Senior Currency Strategist at Commonwealth Bank of Australia, “but the risks lie towards fewer cuts if inflation picks up.”
Broader FX Market Movement
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The euro rose 0.1% to $1.1197
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The British pound held firm at $1.3309
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The U.S. dollar index fell 0.1% to 100.70, but remained up 0.3% for the week after Monday’s 1.3% surge
The 10-year U.S. Treasury yield slipped to 4.4413%, extending a 7-basis-point drop, while the 2-year yield edged down to 3.9608%.
Asian Currencies Mixed
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Japanese yen gained 0.26%, with the dollar falling to 145.30 yen
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Australia’s dollar was marginally higher at $0.6406
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New Zealand’s dollar dipped 0.02% to $0.5874, heading for a 0.5% weekly loss
Japan’s economy added pressure to the yen after contracting in Q1 for the first time in a year, underlining vulnerabilities amid global trade shifts.
