Dollar Faces Worst Weekly Drop in Over a Year

The U.S. dollar faced significant declines, marking its worst weekly performance in over a year, largely due to easing fears surrounding potential tariffs under President Donald Trump. Following a positive conversation with Chinese President Xi Jinping, traders grew optimistic that tariffs may not be as severe as anticipated, contributing to a 1.83% weekly drop in the dollar index. The euro and Chinese yuan gained strength in this environment, with the euro up approximately 2.25% for the week. Additionally, the Bank of Japan's recent interest rate hike supported the yen, despite some profit-taking after the announcement. As the Federal Reserve prepares for its upcoming meeting, market participants are closely monitoring potential signals regarding interest rate cuts. Overall, market sentiment shifted towards risk-on, benefiting several currencies while undermining the dollar's strength.