The Bloomberg Dollar Spot Index closed its worst week in over two months due to expectations of Fed rate cuts and US banking sector credit risks. Two-year Treasury yields hit a three-year low, with traders pricing in 50 basis points of rate reductions by December. The dollar softened amidst easing political risks in Japan and France, ongoing US-China trade tensions, and falling oil prices. President Trump called high tariff rates against China unsustainable, while Treasury Secretary Bessent will discuss trade negotiations with a Chinese official. Hedge funds and institutional investors are adjusting their dollar positions, with near-term sentiment turning bearish despite a stronger outlook into year-end. The US currency has retraced a third of its rebound from September’s low, with Europe-based traders cautious and gravitating back towards recent averages. Bank of America strategists highlight the potential for future FX volatility due to the government shutdown impacting US data releases.

Read more at Yahoo Finance: Dollar Caps Worst Week Since August on Fed Bets, Bank Woes