The US dollar weakened on Friday, October 16, 2026, heading for its first weekly decline in over a month against the euro and yen. This shift came as expectations for a Federal Reserve rate hike faded and concerns over an AI-driven equity selloff persisted. Earlier in the week, stronger-than-anticipated consumer and producer price readings had rattled markets, but Fed officials' comments downplaying the need for urgent policy tightening helped stabilize Treasury yields and reduced support for the dollar.
The dollar index, which tracks the currency against six major peers, fell 0.42% to 101.61, setting it up for a 0.6% weekly drop. The pound and Swiss franc led gains against the dollar, with the latter benefiting from safe-haven demand and expectations that Switzerland would maintain its current zero interest rate policy. Sterling rose 0.60% to $1.3353, up 0.92% on the week, while the dollar fell 0.48% against the Swiss franc to 0.8228, leaving it down 0.92% for the week.
Markets now assign an 85% probability to the Fed keeping rates unchanged later this month, according to the CME FedWatch Tool. Analysts noted that there is insufficient support within the Fed committee, particularly from governors, for a rate hike in October, leaving December's decision uncertain. Meanwhile, fiscal risks in France remained a background concern after the recent spike in the French debt risk premium.
The euro rose 0.33% to $1.1255, on track for a 0.48% weekly gain, while the dollar weakened 0.12% against the yen to 157.79, setting the Japanese currency for a 0.33% weekly rise after four consecutive weeks of declines. Bank of Japan Governor Kazuo Ueda reiterated concerns that underlying inflation could overshoot the central bank's 2% target.