Peter Nurse

Investing.com – The U.S. dollar weakened in early European trade Friday, sinking to a one-month low on rising expectations that the Federal Reserve’s tightening cycle could be relatively short-lived.

At 3.55 AM ET (0755 GMT),, which monitors the greenback against a basket six other currencies traded 0.2% lower at 101.650. This is close to its lowest level since April 25, and will likely fall by around 1.5% next week.

Also, it rose 0.2% a 1.0742, rose 0.2% a 1.2621; both of these pairs reached levels not seen since mid-April. The risk-sensitive also climbed 0.4% à 0.7128, while 0.4% jumped to 0.6505.

The dollar rose to an almost 20-year high in March, but it has since fallen amid indications that tightening monetary policy may be slowing down economic growth.

Thursday’s data showed that the U.S. economy contracted by 1.5% annually, which was slightly less than what had been initially projected in the first quarter.

The Wednesday minutes of the May Fed meeting indicate that central bank policymakers might be willing to slow down or even stop tightening in the second half, if inflation starts to fall.

Attention will now turn to the release of the , due later Friday, with the version of this index, which excludes the volatile food and energy elements, being the Fed’s primary gauge of inflation. The index will fall from 5.2% to 4.9% annually in March to an expected annualized 4.9%.

“Pricing of the Fed tightening cycle has corrected 25-35bp lower since early May,” said analysts at ING, in a note, “but Fed speak and the US, data calendar suggests those higher levels for the Fed terminal rate could easily be put back into the market – which is dollar supportive.”

Elsewhere, rose 0.1% to 16.3826 after Turkey’s central bank left interest rates unchanged for a fifth month on Thursday, resulting in deeply negative rates when inflation is taken into account.

This has had a negative impact on the lira. The Turkish currency is the worst performing emerging market currency so far in 2022, losing about 19% against USD.

It fell to 6.7379 following a decline in industrial profits in Chinese companies last month. They dropped 8.5% from the previous year, and this was due to COVID infections and lockdowns that disrupted economic activity.