USD experiences its biggest weekly decline in 5 months.

The Dollar Index – which measures the strength of the greenback against six major world currencies – fell 0.8% this week, its sharpest decline since mid-January.

The USD weakened as investors anticipated the Federal Reserve would halt interest rate hikes this month and the US Congress would pass a debt ceiling bill. Currently, the index is down 0.1% from yesterday.

Investors are betting the Fed will halt interest rate hikes next month, making the dollar less attractive to buyers outside the US. On June 1st, Philadelphia Fed President Patrick Harker said, "It's time to hit the pause button once and for all and see what happens."

The day before, Federal Reserve Board member Philip Jefferson also stated that "skipping a rate hike at the upcoming meeting would allow the board time to gather more data, thereby deciding on the scale of policy tightening." The next Fed meeting is scheduled for June 13-14.

With the debt ceiling issue now behind us, investors will focus on central banks and economic data. However, we have rather conflicting messages. "Recently, two Fed officials have mentioned pausing rate hikes in June, but also haven't ruled out the possibility of raising rates again this summer. I think expectations of rate hikes could still support the USD," commented Fiona Cincotta, market strategist at City Index.

Recent US manufacturing data has been declining, reinforcing the view that interest rate hikes should be halted. However, the job market has not cooled down. The US May jobs report will be released today.

The market is now forecasting a 29% chance of the Fed raising interest rates, a sharp drop from nearly 70% earlier this week.

In addition, the fact that both the US House of Representatives and the Senate have passed the debt ceiling bill is also believed to have weakened the USD. "This will lead investors to accept higher risks, thereby negatively impacting the USD," explained Ray Attrill, Director of Foreign Exchange Strategy at National Australia Bank.

UBS also stated on May 30th that the debt ceiling agreement, once passed, would support risky assets, putting pressure on the USD. The US dollar is considered a safe-haven asset during times of volatility.

Ha Thu (according to Reuters)

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