Investing.com – The U.S. dollar edged higher on Friday, heading for a positive week, while the British pound fell after weak retail sales data.
At 04:10 ET (09:10 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 104.065, recovering from its lowest in nearly four months and on track for its first weekly gain in three.
Dollar is in demand as a safe haven
The dollar rose from recent lows as weak U.S. employment and manufacturing data added to uncertainty over when the Federal Reserve will start cutting interest rates.
The US currency also saw demand as a safe haven as US-China relations weakened and uncertainty mounted over the US presidential race, amid calls for President Joe Biden to abandon his re-election bid.
“If President Biden steps down, there is a scenario where the dollar could fall slightly on the view that Democrats will have a better chance of holding the Senate and that we will be looking at a ‘Trump-bound’ scenario,” analysts at ING Bank said in a note.
Sterling retreats from recent highs
The pound was down 0.2% against the US dollar at 1.2914, heading lower after rising to a one-year high earlier in the week.
The UK consumer price index fell by 1.2% in June compared with an expected decline of 0.4%, indicating that British consumers are feeling the pressure from higher interest rates.
Combined with recent data suggesting UK wage growth is slowing and inflation is at the Bank of England’s 2% target, bets on an August rate cut have risen to 43%, up from 39% on Thursday.
The pound fell 0.2% against the US dollar to 1.0878, retreating further from a four-month high hit on Wednesday after the bank kept interest rates steady at its meeting on Thursday.
“The market’s expectations for the path of interest rates seem fairly reasonable to me at the moment,” ECB policymaker Francois Villeroy de Galhau said in an interview with French radio BFM Business on Friday when asked if he agreed with expectations of a possible cut in September and another in December.
Markets are pricing in the European Central Bank cutting interest rates about twice more during the rest of the year.
Yen falls after CPI data
In Asia, the Australian dollar fell 0.1% to 157.29 after Japan’s inflation reading came in weaker than expected for June, increasing uncertainty over whether the Bank of Japan will have enough room to raise interest rates further at its meeting later this month.
The pair fell to around 155 earlier this week, sparking speculation that the Japanese government intervened in the currency markets.
The pound (USD) rose 0.1% to 7.2674, with the pair approaching levels last seen in November 2023.
The yuan was weighed down by recent reports that the United States is considering tougher trade sanctions on China’s technology and chip sectors – a move that could trigger retaliatory measures from Beijing.