Investing.com - 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.