The US dollar broke a three-day losing streak as selling pressure eases

The US dollar broke a three-day losing streak on Friday as a recent surge in selling, triggered by the view that tightening action by the Federal Reserve was largely priced in, eased and weaker risk appetite in financial markets caused investors to avoid riskier currencies.

The US dollar index rose 0.3% to 95.157, but looks set to end the week down around 0.6%, its worst weekly performance since early September.

The US dollar, which gained more than 6% against a basket of currencies in 2021, came under pressure this week despite Fed Chairman Jerome Powell's announcement that the US economy is ready to start tightening monetary policy and data showing the biggest annual inflation increase in nearly four decades.

"Investors appear to be of the view that the US dollar has peaked and that Fed tightening is already priced in, with currencies such as the euro offering higher potential returns going forward," ‎Exness Account Types currency strategists said in a note.

"We disagree, but we have to acknowledge that the US dollar has failed - at least psychologically - by breaking supportive yield spreads against its peers and breaking the base of its recent consolidation range," they said.

Hedge fund dollar positioning close to its highest levels since early 2020 has increased pressure from dollar sellers this week, analysts said.

US retail sales in December fell the most in 10 months, probably as a result of Americans embarking on holiday shopping in October to avoid empty shop shelves.

The dollar struggled to rise against the Japanese yen on Friday, with the US currency falling 0.02% to a more than three-week low of 114.15 yen.

The Japanese shelter currency has benefited from the recent decline in risk appetite on global financial markets.

Bank of Japan policymakers are discussing how soon they can announce a possible interest rate hike, which could come even before inflation hits the bank's 2% target, Reuters reported on Friday.

The Australian dollar, seen as a liquid indicator of risk appetite, fell 0.99 per cent to a two-day low on Friday amid pressure on global stock markets and rising treasury bond yields.

The pound fell 0.22% against the dollar as investors assessed the impact of a potential leadership change in the country, as Prime Minister Boris Johnson faces the worst crisis of his premiership since revelations of a series of meetings in Downing Street during the COVID-19 lockout.

Cryptocurrencies struggled to make a significant rebound after sharp losses earlier in the week. Bitcoin rose about 1% on the day to $43,086.34, not far from Monday's five-month low of $39,558.70.

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