The U.S. dollar index tumbled to a one-year low in Asian trading on Friday local time amid heightened expectations of an interest rate hike pause by the Federal Reserve.
The index, which tracks the currency's performance against major peers, fell to 100.78 during the session. It is on track to lose over one percent this week, the index's sharpest weekly decline since January.
"The easiest way to express a dollar negative view has been with the euro."
Ray Attrill, Head of FX Strategy at National Australia Bank
Meanwhile, the euro jumped to a new one-year high of $1.1075 following a rally the day before. The eurozone shared currency is currently on track for a weekly gain of over 1.5 percent. National Australia Bank head of FX strategy Ray Attrill said a rally by the euro usually indicates a "dollar negative view."
Like the euro, the British pound hit its 10-month high against the greenback at $1.2545. The Australian dollar rose to $0.6783 after rising by 1.3 percent in the previous trading session. The Kiwi also traded 0.19 percent higher to $0.6309.
The Japanese yen gained slightly to 132.47 per dollar, while China's offshore yuan strengthened to 6.8327.
The U.S. Labor Department published March's producer price index (PPI) on Thursday. Wholesale prices increased by 2.7 percent year-over-year — its lowest level in almost three years. The monthly wholesale price growth was 0.5 percent.
According to Attrill, the significant fall in the U.S. PPI had "made people a bit more convinced" that the Fed would soon end its monetary tightening cycle. The analyst added that it strengthened the "conviction" that the Fed would start cutting rates before the end of 2023.
The market still forecasts a 69 percent chance that the U.S. central bank will raise interest rates by a quarter percentage point in the next Federal Open Market Committee (FOMC) meeting.
However, the market expects the Fed to perform several interest rate cuts from July to the end of the year. The interest rate will likely hover above 4.3 percent by December from the current range of 4.75 to 5.00 percent.
The PPI data followed the consumer price index (CPI), which showed that consumer price growth fell to its lowest rate in 15 months in March. The annualized consumer price increase was 5.66 percent.
There are other signs of easing global inflationary pressures in other parts of the world. For instance, China recently reported that its March exports jumped 14.8 percent year-over-year, against the earlier prediction of a seven percent decline.
Australia also reported a robust employment situation month. Attrill explained that the upbeat data from China and Australia propped the Australian dollar.
"You layer on top of that, the dollar weakness from the data last night and positive risk sentiment, and it was a (raft) of good news for the Aussie," Attrill said.
Mild recession possible in U.S.
Fed economists said a mild recession, indicated by minimum growth and a weakening economy, could happen in the U.S. later this year. They also warned that the "soft-landing" window for the economy was "closing quickly."
The Fed started raising the benchmark lending rate in March last year to bring down inflation. Despite repeated assurances of a soft landing, some analysts doubt the viability of the Fed's plan due to the high inflation rate.
Economists have cautioned that the recent banking turmoil raises the risk of a recession for the U.S. They pointed out that the banking stresses could lead to tighter lending conditions, making it harder for businesses and households to secure loans.