The dollar fell against a basket of the other major currencies on Friday, and recorded its largest weekly decline since June, following comments by the U.S. Treasury secretary earlier in the week welcoming a weaker currency.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.36% at 88.87 late Friday.
For the week, the index was down 1.64%, its largest weekly percentage decline since June.
The dollar slumped to three year lows against a currency basket after U.S. Treasury Secretary Steven Mnuchin said on Wednesday at Davos that a “weaker dollar is good for trade.”
The dollar recovered after President Donald Trump said Thursday the U.S. currency would get “stronger,” appearing to contradict Mnuchin’s comments. Trump added that he thought the remarks by his Treasury secretary had been taken out of context by investors.
The comments were seen by markets as a departure from traditional U.S. currency policy. The risk of a weaker dollar is that it could undermine confidence in a wide swath of U.S. assets, including the U.S. Treasury market.
The dollar remained lower after data on Friday showing that U.S. economy grew by an annualized 2.6% in the fourth quarter, rather than the 3% expected, down from 3.2% in the previous three months.
The greenback fell to four-and-a-half month lows against the yen on Friday, with USD/JPY settling at 108.58 after Bank of Japan Governor Haruhiko Kuroda said the bank expects the economy to continue growing at a moderate pace and inflationary expectations are picking up.
The pound pushed higher against the greenback, with GBP/USD rising 0.15% to 1.4159 amid growing optimism over Brexit and the economic outlook.
The euro was higher against the dollar on Friday, with EUR/USD up 0.24% at 1.2427 after hitting a more than three-year high of 1.2537 on Thursday.
European Central Bank President Mario Draghi criticized Mnuchin’s comments about the dollar on Thursday, warning that such language violated longstanding international agreements designed to prevent currency wars.
Draghi said recent exchange rate volatility is a source of uncertainty and needs to be monitored for its impact on short term price stability.
A stronger euro makes the ECB’s task of bolstering inflation harder because cheaper imported goods act as a drag on prices.
In the coming week, investors will be focusing on the upcoming Federal Reserve meeting, the last under the leadership of Janet Yellen before she hands the chairmanship over to Jerome Powell.
Friday’s U.S. jobs report for January and Wednesday’s euro zone inflation data will also be closely watched.

Monday, January 29

The U.S. is to release data personal income and spending and the personal consumption expenditures price index.

Tuesday, January 30

New Zealand is to report on the trade balance and Australia is to produce data on business confidence.
The UK is to release data on net lending.
Germany is to publish preliminary inflation data for January.
The euro zone is to publish a preliminary estimate of fourth quarter economic growth.
The U.S. is to publish a report on consumer confidence.
Bank of England Governor Mark Carney is to testify before the House of Lords Economic Affairs Committee, in London.

Wednesday, January 31

Australia is to release inflation data.
China is to publish report on manufacturing and service sector activity.
The euro zone is to produce preliminary data on inflation for January. Germany is to report on retail sales.
Canada is to release its monthly GDP report.
The U.S. is to release the ADP nonfarm payrolls report, as well as a report on manufacturing activity in the Chicago region and data on pending home sales.
The Federal Reserve is to announce its latest monetary policy decision and publish its rate statement, which outlines economic conditions and the factors affecting the decision.

Thursday, February 1

Australia is to report on building approvals.
China is to publish its Caixin manufacturing index.
The UK is to release data on manufacturing activity.
The U.S. is publish the weekly report on jobless claims along with data on labor costs while later in the day the Institute for Supply Management is to publish its manufacturing index.

Friday, February 2

The UK is to publish a report on construction activity.
The U.S. is to round up the week with the nonfarm payrolls report for January as well as revised data on consumer sentiment and a report on factory orders.