By Tom Westbrook
SINGAPORE (Reuters) – The dollar headed for its biggest weekly decline against the euro in two-and-a-half months on Friday, as signs of cooling inflation and a weakening U.S. economy raised the prospect of interest rate cuts.
The euro rose 0.9% against the dollar this week, breaking resistance around $1.0855 and trading as high as $1.0895 in the wake of a slowdown in US inflation.
It was last at $1.0861. Annual US inflation figures in April met expectations, but being lower than the month before boosted confidence that the Federal Reserve can cut rates in September and December, leading to rallies in stocks and bonds and putting pressure on the dollars.
US retail sales were also flat and softer than expected in April, while industrial production fell unexpectedly.
“Along with inflation, a lot of activity data is cooling off,” said Westpac strategist Imre Speizer, who contributed to the dollar’s selling.
At the same time, even as markets are pricing in European interest rate cuts from June, recent data shows some upside surprises. The German economy grew stronger than expected last quarter and investor morale is at a two-year high.
The Australian and New Zealand dollars are each up more than 1% against the US dollar this week, up 1.7% and looking at the best week of the year. [AUD/]
At $0.6675, yields fell from a four-month high as a surprise rise in unemployment rates appeared to limit any risk of another rate hike.
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The New Zealand dollar was last steady at $0.6120 and traders looked ahead to next week’s central bank meeting, where the official spot rate is expected to remain at 5.5%.
Sterling is up 1.1% this week to $1.2664. The Japanese yen remained largely stable at 155.48.
In the cryptocurrency markets, bitcoin is up 6.6% this week to $65,343.
China’s retail sales and industrial production figures will be published later in the session, with final European CPI figures due later on Friday.
