US Dollar Retreats Amid Improved Risk Appetite

The US dollar weakened on Friday, retreating from recent highs as improved risk sentiment buoyed global markets. This shift in investor sentiment followed positive economic data releases, including stronger-than-expected manufacturing activity and a decline in jobless claims.

The US Institute for Supply Management (ISM) manufacturing PMI rose to a nine-month high, surpassing market expectations. Additionally, weekly jobless claims fell to an eight-month low, indicating a resilient labor market. These positive economic indicators have tempered expectations for near-term interest rate cuts by the Federal Reserve.

The market is now pricing in a lower probability of a rate cut at the upcoming Federal Reserve meeting, as reflected in the CME FedWatch Tool. This shift in expectations, coupled with improved risk appetite, has weighed on the US dollar. The dollar index, which measures the greenback against a basket of six major currencies, declined from its recent highs.