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Dollar slips as rate path fuels recession worries

On Friday, the U.S. dollar slipped against its major peers for its first weekly decline this month as investors continued to assess the path of Federal Reserve policy and whether aggressive rate hikes would trigger a recession.

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The safe-haven currency also lost support amid improved market sentiment, which saw regional stock markets rise and buoyed riskier currencies like the Australian and New Zealand dollars.

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The dollar index, which measures the greenback against six rivals, sank 0.2% to 104.19 in Asia.

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That undid the previous day's 0.19% rise, which was driven mostly by a decline in the euro after weak European factory data reduced bets for European Central Bank tightening.

"Recession talk has upset the DXY uptrend, but we don't think retracements have legs beyond the low 102s," Westpac strategists wrote in a client note, referring to the dollar index.

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"Fed Funds is set to rise above 3% by year's end, so USD interest rate support should ultimately continue to build," they added.

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The ECB meanwhile is struggling to contain peripheral spreads, and the Eurozone is facing more material stagflation hardship - hardly enticing."

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Dollar trading has been choppy this week, with markets now betting on more cautious policy action from the Fed after another expected 75 basis point increase in July.

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The dollar index has dropped 0.42% over the period.

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