Dollar set for weekly slide as US inflation cools

The dollar was headed for its largest weekly drop for months against the euro, yen and franc on Friday, as investors sold in anticipation of almost 100 basis points of U.S. interest rate cuts next year.

At $1.0854 to the euro, the dollar has shed 1.6% for the week, its steepest fall since mid-July. It is also down 1.6% for the week to 0.8882 Swiss francs and has even lost 0.6% to trade at 150.53 on the out-of-favour yen.

Oil hit four-month lows on Thursday and Walmart said it will cut prices, adding to the disinflationary pressures that data this week showed had steadied U.S. consumer prices and convinced investors inflation is in retreat and rate increases are over.

Thursday's batch of weak U.S. economic data also reinforced that stance. Futures markets have priced in 98 basis points of Fed rate cuts next year, compared with 73 bps a week ago.

"While the amount of easing factored in appears aggressive, the direction of travel looks right," said Peter Dragicevich, strategist at cross-border payments firm Corpay in a note.

"The U.S. inflation pulse has turned, and the negative consequences of past policy tightening is starting to manifest," he said.

"As the next Fed easing cycle comes into view, U.S. yields move lower, and U.S. growth comes back to the pack, we are looking for the USD to gradually deflate over the next few quarters."

Sterling is up 1.5% for the week at $1.2410. The Australian and New Zealand dollars lost a bit of shine on Thursday, when signs of a slowing U.S. economy knocked commodity prices but they remain set for weekly gains.

Moves in Asia trade on Friday were small, leaving the Aussie at $0.6466, up 1.7% on the week, and the kiwi at $0.5960, up 1.2% on the week.

China's yuan was eyeing its best week in two months and traded near a three-month high at 7.2447 per dollar.

"As soon as markets become confident a Fed rates peak is in ... prevailing dollar strength will be seen to be on borrowed time," strategists at National Australia Bank said in a note.

Several European Central Bank speakers appear later on Friday, British retail sales data is due along with U.S. housing starts. In cryptocurrencies, bitcoin is set to snap a four-week winning streak with a modest 1.8% fall to $36,416.