Dollar heads for worst week since June

The Bloomberg Dollar Spot Index fell to a three-week low on Friday and is down 0.8% over the past five days. Options markets show traders are now paying a premium to hedge against further dollar losses over the next month—marking a sharp turnaround from a week earlier, when bullish sentiment on the greenback was at its strongest since November, News.Az reports, citing Bloomberg.

Investors were whipsawed this week as US President Donald Trump first brandished tariffs on Europe over his bid for Greenland, then abruptly dropped them after striking a deal with NATO Secretary General Mark Rutte at the World Economic Forum in Davos.

The fact that the greenback is sliding — even as US Treasury yields rise on bets a resilient economy will keep the Fed on hold — suggests political risks are a bigger factor for the currency than monetary policy.

Money markets favor two quarter-point interest rate cuts this year, and price in almost no chance of a move next week. One-week volatility, which captures the Federal Reserve policy decision on Jan. 28, climbed to its highest level in more than a month.

Applications for US unemployment benefits were little changed last week, steadying at low levels after a volatile holiday season, according to Labor Department data released Thursday. Initial claims increased by 1,000 to 200,000 in the week ended Jan. 17, while the median forecast in a Bloomberg survey of economists called for 209,000.