Investing.com - The dollar recovered from a five-month low against a basket of the other major currencies on Friday, as investors bought back greenbacks ahead of the weekend following an aggressive selloff earlier in the week.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, tacked on 0.3% on Friday to settle at 95.07, moving away from a five-month low of 94.61 hit overnight.
For the week, the dollar index lost 1.09%. The greenback’s losses came after the Federal Reserve surprised markets by cutting its rate hike projections more than expected, down from four to two in 2016.
The Fed scaled back forecasts for how high interest rates will rise this year following the conclusion of its policy meeting on Wednesday, citing the potential impact from weaker global growth and financial market turmoil on the U.S. economy.
Investors and economists dialed back their own rate hike expectations in wake of the Fed’s surprisingly dovish outlook, with traders of interest-rate futures now seeing no rate rise before September.
Against the yen, the greenback edged up off the prior session’s 17-month lows on Friday after Japanese Finance Minister Taro Aso said that he would closely watch foreign exchange market moves, sparking speculation that the Bank of Japan had intervened in currency markets.
Earlier in the day, the minutes of the Bank of Japan’s January policy meeting showed that policymakers made two proposals, one to expand the bank's asset-buying program and another to add negative interest rates to asset purchases.
According to the minutes, the BOJ eventually decided to adopt the negative interest rate policy after several members argued the move would help prevent external factors from delaying the eradication of Japan's "deflationary mindset".
On the week, the dollar shed nearly 2% against the yen, its steepest fall against the Japanese currency in five weeks.
Meanwhile, EUR/USD retreated from a five-week high Friday after European Central Bank Chief Economist Peter Praet said euro zone interest rates could go even lower. It was still up over 1% for the week.
In other currency trading, the Canadian dollar rallied to five-month highs against its U.S. counterpart, after a reading on retail sales growth in January showed a sharp rebound from the prior month. It finished the week up 1.8%.
In the week ahead, market players will be turning their attention to Friday’s final reading on U.S. fourth quarter gross domestic product for fresh indications on the strength of the economy.
Reports on U.S. durable goods orders and home sales will also be in focus, as investors attempt to gauge if the world's largest economy is strong enough to withstand further rate hikes in 2016.
Traders will also be paying close attention to a number of speeches from key Fed officials this week, including James Bullard, Dennis Lockhart, Jeffrey Lacker, Charles Evans and Patrick Harker.
Meanwhile, market players will be looking to Tuesday’s survey data on euro zone business activity as well as fresh readings on German economic sentiment for indications on the health of the region’s economy.
U.K. consumer price inflation and retail sales data will also be in focus.
Markets are closed Friday for Good Friday. Below-average trade volume in a holiday-shortened week could exacerbate any moves and increase volatility.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, March 21
The U.S. is to release data on existing home sales. Meanwhile, Richmond Fed President Jeffrey Lacker, Atlanta Fed President Dennis Lockhart and St. Louis Fed President James Bullard are due to speak throughout the day.
Tuesday, March 22
Reserve Bank of Australia Governor Glenn Stevens is due to speak at an event in Sydney.
The euro zone is to release survey data on manufacturing and service sector activity. Germany and France are also to release individual reports. Meanwhile, the Ifo research institute and the ZEW Institute will produce individual reports on March German business sentiment.
The U.K. is to publish data on consumer inflation.
Chicago Fed President Charles Evans and Philadelphia Fed President Patrick Harker will deliver speeches during the day.
Canada’s Department of Finance is set to release the federal government's budget for the year.
Wednesday, March 23
The U.S. is to release a report on new home sales, while the U.S. Energy Information Administration is to release its weekly report on oil supplies.
Thursday, March 24
New Zealand is to publish a report on the trade balance.
The U.K. is slated to produce data on retail sales growth.
The U.S. is to release reports on durable goods orders and initial jobless claims, while St. Louis Fed President James Bullard is due to speak on the U.S. economy and monetary policy.
Friday, March 25
Japan is to release data on consumer price inflation.
The U.S. is to round up the week with a final reading on U.S. fourth quarter gross domestic product.
Markets are closed Friday for Good Friday. Below-average trade volume in a holiday-shortened week could exacerbate any moves and increase volatility.