Dollar set to snap 5-week streak but yen hits lowest in almost 3 years

© Reuters. FILE PHOTO: An employee counts U.S. dollar bills at a money exchange in central Cairo, Egypt, March 20, 2019. REUTERS/Mohamed Abd El Ghany./File Photo

By Kevin Buckland

TOKYO (Reuters) - The dollar headed for its first weekly decline versus major peers since the start of last month, falling back from a one-year high as traders turned their attention to when the U.S. Federal Reserve will start raising interest rates.

The dollar index, which measures the greenback against six rivals, slipped 0.1% to 93.945 on Friday. It is on track for about a 0.19% decline this week despite hitting the highest since Sept. 25 of last year at 94.563 on Tuesday.

Improved market sentiment, which has lifted global stocks, commodity prices and bond yields, is also weighing on the safe-haven dollar.

Only against the yen - another currency seen as a haven - has the dollar managed to maintain the momentum of the past five weeks, rising 0.33% on Friday and touching 114.075 yen for the first time since December of 2018.

"We end the week with risk flying," Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a client note.

"Equities are going up hard, and the JPY has no place as a hedge," because it would just drag on overall portfolio performance, Weston said.

The greenback had rallied since early September on expectations the U.S. central bank would tighten monetary policy more quickly than previously expected amid an improving economy and surging energy prices.

Minutes of the Fed's September meeting confirmed this week that a tapering of stimulus is all but certain to start this year, although policymakers are sharply divided over inflation and what they should do about it.

Money markets are currently pricing in about 50/50 odds of a 25 basis point rate hike by July.

The dollar index is "looking a little shaky, but any slippage should prove modest" with Fed tapering now imminent, Westpac strategists wrote in a client note.

Any dips in the index should be limited to 93.70, they said.

The next major glimpse of the U.S. economy's health comes later on Friday with the release of retail sales figures.

While traders see the risks for an earlier rates lift-off, they have also priced a lower terminal rate, with the projected one-year rate five years from now falling to 1.63% from 1.97% over the course of the week, Ray Attrill, head of FX strategy at National Australia Bank (OTC:NABZY), wrote in a client note.

"This drop in terminal Fed Funds pricing might go some way to explaining why the USD sits slightly lower on the week," he said.

The euro edged up 0.08% to $1.16065 after touching $1.1624 on Thursday for the first time since Sept. 4.

Sterling was 0.1% higher at $1.36835 following its climb to the highest since Sept. 24 at $1.3734 overnight.

The risk-sensitive Aussie dollar added 0.1% to $0.7423, approaching the more than one-month high of $0.74265 of the previous session.

New Zealand's kiwi dollar jumped 0.35% to $0.70585, extending Thursday's 1% surge. It earlier touched $0.7060, the highest since Sept. 24 at $0.70415.

In cryptocurrencies, bitcoin rallied as high as $60,000, an almost six-month peak, as traders became increasingly confident that U.S. regulators would approve the launch of an exchange-traded fund based on its futures contracts.

Smaller rival ether rose as high as $3858, the highest since Sept. 7.