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Dollar Struggles for Momentum as Markets Wait for Inflation Data

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The dollar stabilised on Monday after dropping on Friday following lower-than-expected U.S. jobs data, and currency markets broadly lacked momentum as investors looked ahead to key inflation data later this week.

Friday’s jobs data was seen as a relief for markets, showing a pick-up in job growth was not strong enough to raise expectations for the U.S. Federal Reserve to tighten its monetary policy any sooner, and this hurt the dollar.

There was little movement in major currency pairs during the early European session on Monday. World shares were trading near record highs.

At 1125 GMT, the dollar index was flat on the day at 90.141. The euro was down 0.1% against the dollar, at $1.2159.

The Australian dollar, which is seen as a proxy for risk appetite, was up 0.2% versus the U.S. dollar at 0.77535 .

“After Friday, we’re looking at a foreign exchange market that’s still got no reason for the Fed to change its tune, so we’ve still got accommodative monetary policy in the United States,” said Kit Juckes, head of FX strategy at Societe Generale. “But on balance we’re getting more optimistic about the global economic and health outlooks.”

Market participants were focused on U.S. inflation data and the European Central Bank meeting, both on Thursday.

Dovish rhetoric from ECB policymakers suggests the bank is in no hurry to slow the pace of buying under the 1.85 trillion euro ($2.24 trillion) Pandemic Emergency Purchase Programme (PEPP).

But U.S. Federal Reserve policymakers have begun inching toward a discussion about winding that help back.

“A divergence has opened up recently between the ECB and Fed who have signalled a willingness to discuss QE tapering at upcoming meetings,” MUFG currency analyst Lee Hardman wrote in a note to clients. “It will help dampen upward momentum for EUR/USD. However, the developments are not sufficient to alter our bullish outlook the pair beyond the near-term.”

Speculators decreased their net short dollar positions in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday.

China’s yuan hovered around the key 6.40 level, with the offshore yuan changing hands at 6.3960.

China’s export growth missed forecasts and imports grew at their fastest pace in 10 years in May, fuelled by surging demand for raw materials. read more

“In general, the trade sector continues the strong performance indicating that the manufacturing sector remains the leading role in the post-pandemic recovery,” wrote Commerzbank senior economist Hao Zhou in a note.

“However, the trade data might have little FX market impact, as the authorities vow to keep a stable currency for the time being.”

Elsewhere, the United States, Britain and other rich nations reached a deal on Saturday to squeeze more money out of multinational companies such as Amazon and Google and reduce their incentive to shift profits to low-tax offshore havens.

Investors were wary of how tech stocks would react, in terms of currency markets, but ING strategists wrote in a note to clients that the plans for a minimum global corporate tax rate of at least 15% could result in a repatriation of global capital over a longer term which would be positive for the dollar.

“Our thoughts here are that the removal (of) tax havens could have implications for the hundreds of billions of dollars of cash parked overseas by US multi-nationals – reducing the incentives to keep cash overseas,” they said.

In cryptocurrencies, bitcoin was up 2% around $36,535 , while ether was up 4.2% at $2,825 . Both were trading within the month’s relatively narrow ranges.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Dollar

Dollar Attains Parity With Euro on Tuesday

The United States Dollar (USD) exchange rate to European common currency (Euro) was the exact same in the early hours of Tuesday for the first time in 20 years.

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The United States Dollar (USD) exchange rate to European common currency (Euro) was the exact same in the early hours of Tuesday for the first time in 20 years.

The Euro-USD exchange rate opened at 1.003 on Tuesday and dropped to 0.999 before moderating to 1.0036 at the time of writing.

The slowing global economy amid rising interest rates has made the United States Dollar attractive to global investors who were looking to avoid the negative impact of the projected economic recession and ensure they have in their possession operating capital for possible re-entry at lower price levels or to avoid the impact of persistent increase in borrowing costs (interest rates) in the near-term.

As shown below, the Euro-USD pair started declining on February 10, 2022 when the United States announced that Russia was planning to invade Ukraine.

The invasion, which eventually happened on February 24, has disrupted the global economy, bolstered commodity prices, and increased global risks and uncertainties. In an effort to rein in the high inflation rate, economies started raising interest rates in a move to curb escalating inflation rates.

These aggressive increases have started dragging on new investments, new job creation, consumer spending, retail sales and export orders. And financial experts are now predicting it could get worse with Russian sanctions.

Western nations are working on imposing additional oil sanctions on Russia. This, JP Morgan predicted could push oil prices above $350 a barrel and further complicate the global economy.

All the aforementioned are responsible for the increase in dollar strength against Euro and other global currencies to over 20 years high.

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U.S. Dollar Pulls Back on Thursday After Hitting a 20-Year High

The United States Dollar pulled back slightly on Thursday after hitting a 20-year high on the back of rising interest rates and global demand for haven currencies.

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The United States Dollar pulled back slightly on Thursday after hitting a 20-year high on the back of rising interest rates and global demand for haven currencies.

The dollar index rose to 107.05 in the previous session, the highest in 20 years before pulling back to 106.57 at 11:07 am Nigerian time.

Against the Euro common currency, the U.S. Dollar gave back some of its gains on Thursday to trade at 1.0213, up from 1.0173 attained after dropping below 1.0350 support levels.

Similarly, the greenback pared gains against the British Pound to 1.2009 despite over 40 British lawmakers resigning their positions and calling for the resignation of Prime Minister Boris Johnson enmeshed in a series of scandals.

The value of the United States Dollar rose in recent weeks after it became clear that the Federal Reserve won’t be halting its rate increase anytime soon. The surge in demand for the United States Dollar was to avoid paying excessive borrowing costs going forward and also to ensure cash availability going into recession, known cash is king.

The Federal Reserve is expected to raise borrowing costs by another 50 basis points to 75 basis points in the month of July as it continues to battle 40 years high inflation rate of 8.6%.

This persistent increase in borrowing costs is expected to weigh on new job creation, new investment, earnings, and subsequently, drag on consumer spending that over the years has sustained the world’s largest economy.

Overseas orders will start waning American goods become more expensive to holders of foreign currencies. This, Investors King predicted would hurt manufacturing activity.

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United States Dollar Drops to a Week-Low After Rates Decision

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The United States Dollar dropped to a week low against its global counterparts on Wednesday after the Federal Reserve raised interest rates by 0.25% against the widely expected 0.75%.

The move came as a surprise to financial market operators for one reason, the U.S. inflation is at a record-high of 8.5%. However, the Fed highlighted rising global risks and uncertainties due to the ongoing COVID-19 restrictions in China and the Russia Ukraine war.

This, the central bank explains necessitates caution.

“The market was pricing in essentially a 50/50 chance that you see a 75 basis point hike by July, between June and July, and so I think the most important takeaway here that I think the market was really fixated on, was whether or not a 75 basis point hike is on the table, and he (Powell) basically pushed back on that,” said Mazen Issa, senior fx strategist at TD Securities in New York.

The United States dollar index declined to $102.48 from $103.64 it peaked on Wednesday immediately the Fed made its decision.

Against the Euro common currency, the United States dollar lost 0.82% to $1.0622. While against the Pounds Sterling and Yen, the green back dropped to $1.2625 and $129.12, respectively.

Stocks and other risky assets rose after Fed suggested it could curb inflation without necessarily triggering a recession.

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