U.S. dollar banknotes are displayed in this illustration taken February 14, 2022. REUTERS/Dado Ruvic

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  • The US dollar posts its first weekly decline this month
  • US rate hike bets reduce aggressive Fed tightening path
  • Increase in sales of new homes in the United States; Michigan sentiment worsens

NEW YORK, June 24 (Reuters) – The U.S. dollar fell on Friday and posted its first weekly decline this month, as traders cut bets on the point where interest rates could peak and advanced their outlook on the timing of rate cuts to counter a possible recession.

An important factor this week was the fall in oil and commodity prices, which eased inflation fears and allowed equity markets to rebound. This eroded the safe-haven supply that boosted the dollar against major currencies.

“Falling commodity prices could help bring headline inflation down – especially in the fall months – reducing the need for aggressive monetary tightening,” said Karl Schamotta, chief market strategist at payment company Corpay in Toronto.

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U.S. federal funds futures on Friday priced a 73% chance of a 75 basis point rise at the July meeting. But for September, the market fully priced in a rise of just 50 basis points.

The market also priced in a fed funds rate of 3.31% on Friday, down from 3.51% a week ago.

In afternoon trading in New York, the dollar index, which measures the US unit against six major currencies, fell 0.2% to 104.013.

The safe-haven greenback slid further after data showed new home sales jumped 10.7% to a seasonally adjusted annual rate of 696,000 units last month. The May sales pace was revised up to 629,000 units from the previously reported 591,000 units. Read more

The University of Michigan Consumer Sentiment Survey showed mixed results, with sentiment deteriorating in June to 50, from a final reading in May 58. But the reading of inflation expectations in five years rose to 3.1 from the preliminary estimate of 3.3% in mid-June. . Read more

The dollar, up about 9% this year, has lost some luster since investors began betting that the Fed could ease the pace of rate tightening after another 75 basis point hike in July. They now see rates peak next March around 3.5% and fall almost 20 basis points by July 2023. read more

That rate hike pushed 10-year Treasury yields to two-week lows, while the dollar index lost 0.5% this week.

For now though, Fed Chairman Jerome Powell has underscored the central bank’s “unconditional” commitment to controlling inflation. read more Fed Governor Michelle Bowman also backed 50 basis point hikes for the “next” meetings after July. Read more

Analysts have noted a revaluation of terminal rates in the developed world as fears of recession grow.

“The Fed has said it will do its best to lower inflation without dealing a heavy blow to the economy,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

“But if a soft landing were to ultimately prove elusive, the Fed would likely have to change course and start cutting rates. So while the rate debate remains fluid, for now inflation fears have gave way to hopes of a looser policy if things really got worse.”

The Japanese yen, sensitive to changes in US rates, fell 0.2% to 135.20 per dollar.

The euro rose 0.3% to $1.0553.

The fall in the greenback boosted even commodity-focused currencies such as the Australian dollar and the Norwegian krone. The Aussie rose 0.8% to US$0.6946 and posted its weekly gain after two consecutive weeks of losses.

The Norwegian krone, fresh off Thursday’s 50 basis point rate hike, rose 1.2% to 9.8495 to the dollar.

The euro fell to its lowest since early March against the Swiss unit at 1.0052 francs. It was the last dish at 1.0118 francs.

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Currency rates at 4:13 p.m. (GMT 2013)

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Reporting by Gertrude Chavez-Dreyfuss in New York; Additional reporting by Sujata Rao in London and Kevin Buckland in Tokyo; Editing by Richard Chang and Alistair Bell

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