US Dollar pinned near 15 month low

The US dollar hovered at 15-month lows on Friday and was set for its worst week since November last year as markets wagered the Federal Reserve was close to the end of its rate hike cycle as inflation eases.

The dollar index, which measures the US currency against six major rivals, fell 0.114% to 99.649, having touched a fresh 15-month low of 99.574 earlier in the session. The index is down 2.5% for the week, its worst weekly run in eight months.

Investors have been betting on a turn in the dollar for months, with short positions more than doubling over the month to July 7, according to data from Commodity Futures Trading Commission, although they remain far off the levels in 2021.

US producer prices barely rose in June and the annual increase in producer inflation was the smallest in nearly three years, data showed on Thursday, a day after data showed consumer prices rose modestly last month.

"Markets are generally pretty pleasant with the lower inflation data, because lower inflation together with the still resilient labour market supports the narrative of a soft landing in the US economy," said Carol Kong, currency strategist at Commonwealth Bank of Australia in Sydney.

"But we still maintain our view that the US will enter a recession later this year because of the impact of past and potentially future interest rate hikes."

Markets are still pricing in a 92% chance of a 25 basis point hike from the Fed later this month, CME FedWatch tool showed, but no more for the rest of the year.

Data on Thursday also showed that the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, indicating that the labour market remains tight even as job growth is slowing.

Fed officials remain cautious, with Federal Reserve Governor Christopher Waller saying he's not ready to call an all clear on US inflation and favours more rate rises this year.

Shane Oliver, head of investment strategy at AMP Capital, said the Fed is still likely to hike another 25 bps this month on concerns that services inflation remain too high and worries that stopping too early when the labour market is still tight could see inflation reignite.

"But that may be it. US inflation also led inflation in other countries on the way up so its decline augurs well for other countries".