The weakness in the US dollar extends into early trading on Friday and it is all set to end the week in the red against other major currencies as investors anticipate that multiple interest rate hikes by the Fed have already been priced in. At the time of writing, the US dollar index DXY is trading around 94.71.

A strong surge in inflation reported earlier this week has also failed to ramp up buying interest in the greenback, sending it into somewhat of a deep dive especially against the common currency. Traders seem more prepared to adopt a wait and watch approach for more clear drivers of price action in forex markets, staying away from the reserve currency for now.

So far this week, the US dollar has weakened by 0.9% against its key rivals, taking a breather after rallying for around six months. This is the sharpest weekly decline seen in the DXY since May 2021.

Meanwhile, the bearish moves in the US currency have helped boost the appeal of other leading currencies in the forex market, sending EUR/USD up by over 0.8% so far this week. Another major, JPY, has also strengthened by 1% for the week, breaking into the 114 level against the USD.

For now, it looks like investors have priced in the likelihood of the Fed hiking interest rates four times this year. The tapering of the Fed’s QE program, rate hikes and QT measures being undertaken could bring Fed funds rate under 2%. However, any possibility that can raise the Fed funds rate past this level could turn the US dollar bullish.