SINGAPORE/LONDON—The euro and pound regained some ground on Friday but were still set for their biggest weekly losses since September.
The euro was last up 0.52 percent at $0.9801, while sterling was up 0.4 percent at $1.1228, also having pared gains from the Asian session.
Nonetheless, the European common currency was still set for a 1.9 percent drop on the week and sterling a 3.4 percent decline, for both the largest weekly fall since the third week of September, when Britain’s then finance minister Kwasi Kwarteng sent markets spinning with a now withdrawn set of fiscal policies.
The dollar strengthened across the board this week after Federal Reserve chair Jerome Powell on Wednesday said the central bank could continue to increase interest rates if inflation doesn’t slow, causing markets to price in a higher peak for U.S. rates.
In contrast, markets read a dovish message into authorities’ remarks around the Bank of England rate increase on Thursday and European Central Bank’s last week, while Norway, Canada, and Australia’s central banks have also recently surprised on the dovish side.
“There’s a growing perceived chance that the Fed will be the last major central bank to throw in the towel and arrest its tightening cycle,” said Francesco Pesole, FX strategist at ING.
“We think this notion can provide quite sustainable support to the dollar into the new year.”
Friday data showed eurozone business activity contracted last month at the fastest pace since late 2020.
The yuan strengthened in both on and offshore trading, with the dollar last 1.28 percent lower against the offshore yuan at 7.2292, its lowest in a week.
“The currency market is the most accessible barometer to digest China’s risk sentiment without getting overly complicated,” said Stephen Innes, managing partner at SPI Asset Management.
The Australian dollar, also a barometer of sentiment towards China given the countries’ close trade ties, rose around 1.5 percent to $0.6392, while the dollar also slid around 0.9 percent against the oil sensitive Canadian dollar and Norwegian crown.
A higher peak in U.S. rates also spells more pain for the Japanese yen, which has been a victim of widening interest rate differentials as a result of the Bank of Japan’s dovishness.
The dollar was last down 0.4 percent at 147.67 yen, with recent moves on the currency pair relatively more subdued on concerns about further intervention from Japanese authorities.
