US Dollar Continues Poor Run Against Major Rivals, Euro Dips on Reports of Tepid Inflation
The week starting July 15 has been mixed in terms of currency performance. However, one consistent development is that the US dollar has been falling against competitors.
Downward pressure on the dollar builds up
Since 2018, the US Federal Reserve has not cut interest rates at any of its policy meetings. However, the last meeting in late June left strong indications that the FOMC would ease rates. During his testimony to the Congress, Fed Chair Jerome Powell gave clear indications that the US economy needed an expansionary monetary policy to get back to growth.
To be sure, the indication during the testimony was that the Fed would cut not more than 25 basis points. In June 2019, bets on a quarter-percentage cut in interest rates were 68.5%, according to CME Group. At the same time, bets on a 50 basis point easing were just 1.9%. Immediately after Powell’s testimony, bets for a 25 bps jumped to 80.1%.
But this is changing as the meeting approaches. Further, comments from the leader of New York Fed, John Williams, on Thursday fueled pointed the market toward the probability of a higher margin easing in July. After Williams’ comments, bets for a 50 bps cut increased to 44.2% against 55.9% for a 25 bps easing. This has put a lot of downward pressure on the dollar.
On Thursday, the greenback slid to 96.76 against a basket of six major competitors. Later that day, the DXY sunk further to a one-month low of 96.68 before climbing to 96.82 at 09:45 PM EDT.
Sterling pound on a recovery mode, Euro dips
Particularly, the persistent underperforming of the US dollar index is down to a strengthening pound. In June, the UK retail sector saw an increase in sales numbers against market expectations.
Expectations were gloomy for retail sales for June. In fact, Reuters polled economists and the result was that June retail sales would experience a 0.3% contraction. Therefore, the reported 1% expansion comes as a surprise. In April and May, the UK retail sector contracted amid the Brexit drama. The positive data cheered the pound which climbed 0.4% to$1.2480.
On the other hand, the Euro was back and forth against the greenback in Thursday trading sessions. Although the single currency gained 0.1% to $1.1234 on Wednesday, the gains were pared by tepid inflation reports. The EUR further slumped after reports that the ECB was considering revising the inflation target to 2%. This opens more space for bets on further easing measures by the bank.
Yuan, Aussie, Kiwi all up
Despite China reporting slowest growth in 27 years just last week, the yuan has continued to gain against the dollar. On Thursday, the currency added 88 basis points to settle at 6.8805 against the greenback.
The yen edged up 0.3% to 107.71 per USD while New Zealand dollar touched $0.6745, a three-month high. Meanwhile, the Australian dollar grew 0.36% to settle at 0.7032 on the back of solid employment figures for June.