Dollar logs its worst week in over 3 months amid Fed doubts

The dollar finished its worst week in over three months on concerns the Federal Reserve won’t move forcefully enough to contain inflation. 

Bloomberg’s Dollar Spot Index dropped 1.3 per cent this week, the biggest drop since April 10. The gauge is near the weakest level in over a month.

Traders boosted their bullish dollar bets ahead of the Fed meeting, turning the most upbeat since 2014 as of Tuesday, according to Commodity Futures Trading Commission data released Friday.

The greenback’s retreat despite higher US yields — which would typically support the currency — reflects angst over the Fed’s credibility. Chair Kevin Warsh is facing scrutiny after his messaging stoked worries that the central bank may hold off raising rates and allow inflation to remain above target. 

The simultaneous drop in Treasuries and the dollar “feels very ‘emerging market’,” said Randhir Prakash, managing director at Gavekal Wealth. Investors are starting to signal displeasure at the path of US policy, he said, which is “bearish for both Treasuries and the US dollar.”

Efforts by Japanese authorities to shore up the yen weakness also added to pressure on the greenback. Intervention saw the Japanese currency surge as much as 3.3 per cent versus the dollar in New York trading on Thursday, though it has since pared the advance after the Bank of Japan left interest rates unchanged on Friday. The yen rose more than 1 per cent against the dollar and euro on Friday.

Still, the Fed’s decision to hold rates rather than hike got some support from the latest economic data. Figures on Thursday showed US economic growth moderated in the second quarter, while the Fed’s preferred measure of inflation — the personal consumption expenditures price index — fell 0.1 per cent last month.

“The market perceived Chair Warsh’s obscure communication in the press conference as denting Fed’s credibility to bring inflation back to the 2 per cent target,” said Howard Du, a strategist at TD Securities. “However, we think a sustainable dollar downtrend should only form on the back of sufficiently soft US economic data and a pricing-out of near-term Fed rate hike odds.”

The dollar rose as much as 0.4 per cent higher on Friday, buoyed by month-end flows before closing the session little changed. Swaps continued to price about 34 basis points of US interest-rate hikes this year, little changed from Thursday.

Non-commercial traders increased their bullish dollar wagers to $49.23 billion in the week through July 28, the highest level since 2014, according to the CFTC.

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Published on August 1, 2026