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The dollar index was steady on Friday, setting up to close lower for a second consecutive week as investors remained cautious ahead of a wave of delayed US economic data.
With the government now reopened after a record-long shutdown, traders are concerned that the backlog of reports could reveal a softer economic backdrop that had been obscured during the data blackout.
This uncertainty has kept markets defensive, leading to a selloff in US assets, including equities and treasuries.
Expectations for a Federal Reserve rate cut next month have been pared back significantly, with markets now pricing just under a 50% probability, which could provide some support to the currency and yields. Still, investors continue to anticipate additional easing in 2026.
Treasury yields rose across the curve, supported partly by Thursday’s remarks from several Fed officials and the bonds’ selloff. San Francisco Fed President Mary Daly warned that it is premature to commit to a December cut, while Minneapolis Fed President Neel Kashkari noted he is undecided after opposing last month’s reduction. Cleveland Fed President Beth Hammack also emphasized the need to keep policy tight enough to restrain inflation, signalling limited enthusiasm for near-term easing.
Looking ahead, the cautious tone from policymakers and the upcoming flood of economic releases could leave the dollar at risk, with its direction likely to hinge on the strength or weakness of the data.
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