Yen is heading for the largest weekly gain in 4 months against USD

The Japanese yen rose on Friday, set for its biggest weekly gain in four months against the dollar on bets that US interest rates are nearing a peak after data on Thursday showed that the world’s largest economy unexpectedly contracted in the second quarter.

Futures markets expect US interest rates to peak by December and the Federal Reserve to cut rates by 50 basis points next year to support slowing growth.

This rapid decline in interest rate hike expectations was a major driver of the dollar’s weakness against the yen. The US currency dropped nearly 2.5 percent against its Japanese counterpart this week, the largest weekly decline for the dollar since late March.

Broadly speaking, the US dollar was slightly lower on Friday, and the dollar index is headed for its second consecutive weekly loss. The index fell 0.5 percent to 105.680, its lowest since July 5.

The euro’s struggle to stay above the $1.02 level has reduced risk appetite amid fears the eurozone economy could collapse by the year’s end.

Safe haven currencies such as the Swiss franc saw demand on Friday.