Investing.com - The dollar fell sharply against its rivals Friday as Federal Reserve Chairman Jerome Powell said there were no "clear signs" of an elevated risk of the economy overheating, affirming expectations that the gradual pace of rate hikes would continue.
The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.55% to 95.02.
Powell, in support of the Fed's glacial approach to tightening, underlined two risks facing the economy. He said too fast a pace of tightening could "needlessly" undermine economy growth, while too slow a pace would risk the economy overheating.
“I see the current path of gradually raising interest rates as the [Federal Open Market Committee’s] approach to taking seriously both of these risks.” Powell said in speech at Jackson Hole, Wyo.
Analysts touted a far more dovish scenario for monetary policy, citing a risk of slowing rate hikes should inflation remain grounded.
"While the Fed is on its one-hike-per-quarter path this year, should inflation stay relatively grounded, the balance of risk approach that Powell talks about could lean towards a somewhat slower pace of tightening in 2019, as rates get closer to where the Fed might see the neutral rate lying," CIBC said.
Powell's speech largely overshadowed data showing core durable goods orders undershot expectations, though analysts were quick to downplay the weakness as the underlying data indicated strong capital expenditure growth.
The Commerce Department said on Friday core durable goods orders fell 0.2% last month, missing economists' forecast for a 0.5% rise. But non-defense ex-air orders grew 1.4%, above economists' estimates.
"The (headline number) 1.7% decline was driven by a huge dive in the always choppy aircraft component, a segment in which orders go with a long lag towards actual activity. Core capital goods (non-defense ex aircraft) saw orders up a healthy 1.4%, continuing their nice uptrend and signaling gains in business investment spending," CIBC said.
The fall in the dollar kept it on track for a second weekly drop in a row, as market participants dived into the euro and sterling.
EUR/USD rose 0.75%, while GBP/USD gained 0.31% to 1.2855. Both pairs are set to post a weekly gain.
USD/JPY fell 0.10% to Y111.19, from a session high of Y111.48.
Elsewhere, USD/CAD fell 0.47% to C$1.302 as a rally in oil prices supported the loonie, keeping a lid on gains in the pair.