The dollar fell as applications for unemployment benefit increased, which reinforced expectations of an interest rate cut by the Federal Reserve

The dollar regained some strength, but remained under pressure on Friday, as rising US unemployment benefit applications and a slight rise in inflation led investors to focus on the likelihood of interest rate cuts by the Federal Reserve next week and beyond, as the US dollar recorded its second weekly decline in a row, and we still expect further declines for the dollar during the coming period.

Data on Thursday showed further signs of a slowing labor market with the largest weekly increase in the number of Americans applying for new unemployment benefits in 4 years.

This overshadowed the US consumer price inflation data for August, which showed prices rising, but still modest and generally in line with expectations.

Despite the rise in inflation, the markets used this as an opportunity to continue betting on significant interest rate cuts by the Federal Reserve in the coming months, but interest rate cuts will hurt the US dollar even more.

FedWatch Tool still indicates a probability of more than 92% to reduce the interest rate next week by 25 basis points, and also by 7% or slightly higher for the probability of reducing it by 50 basis points.