Investing.com - The U.S. dollar fell on Friday to three-month lows against a currency basket amid expectations for rate cuts from the Federal Reserve, while the safe haven yen rose to five-month highs against the greenback on the back of growing geopolitical tensions.
The U.S. dollar index was 0.46% lower at 95.69 after falling as low as 0.9564, the weakest level since March 21.
The greenback’s weakness propelled the euro to three-month highs. The single currency was also boosted by stronger-than-forecast survey data on French and German business activity.
The dollar extended its losses for three straight sessions after the Fed on Wednesday signaled it was prepared to cut interest rates later this year.
The Fed and the European Central Bank have both now hinted they are willing to ease policies to counter a global economic slowdown, exacerbated by global trade tensions.
“Now it’s going to be a horse-race between the Fed and ECB on policy easing,” said Ed Al-Hussainy, senior rates and currency analyst at Columbia Threadneedle Investments in Minneapolis.
The focus now shifts to whether Washington and Beijing can resolve their trade dispute at an upcoming summit in Japan of leaders from the Group of 20 leading world economies.
U.S. President Donald Trump and Chinese President Xi Jinping are due to meet at the G20 later in the week, but analysts say chances of a decisive breakthrough are low.
The euro was 0.67% higher at 1.1366 per dollar in late trade.
The dollar enjoyed a brief respite on news of stronger-than-forecast sales in U.S. existing homes in May.
The encouraging news offset IHS Markit data that showed manufacturing growth weakened to its most sluggish level since September 2009 in June, while services sector activity slumped to its lowest level since February 2016.
Friday’s U.S. data did not change traders expectations the Fed would lower key lending rates, as early as July.
Meanwhile, Iran’s downing of an unmanned U.S. surveillance drone stoked fears about a military conflict between the two nations following a spate of attacks on oil tankers in the Gulf region.
An initial wave of safe-haven buying of the yen faded following news that Trump shelved a missile strike against Iran and preferred dialogue with Tehran, especially over its nuclear program.
“The Iranians for their part refused the overture for now, so tensions remain high, but the risk of conflict appears to have eased,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
The dollar was last at 107.30 per yen after falling as low as 107.06 overnight, the lowest since Jan. 3.
Ahead of the coming week, Investing.com has compiled a list of significant events likely to affect the markets.
Monday, June 24
German Ifo Business Climate
Tuesday, June 25
CB Consumer Confidence (Jun)
New Home Sales (May)
House Price Index (May)
Fed Chair Powell Speaks
FOMC Member Bullard Speaks
FOMC Member Williams Speaks
Wednesday, June 26
U.S. Durable Goods Orders (May)
U.S. Trade Balance (May)
Thursday, June 27
U.S. Initial Jobless Claims
Pending Home Sales (May)
Friday, June 28
U.K. GDP
Eurozone CPI (Jun)
Core PCE Price Index (May)
Canada GDP
Michigan Consumer Sentiment (Jun)
--Reuters contributed to this report