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Dollar Firm as Traders Brace for U.S. Inflation Data

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The U.S. dollar held near multi-month highs on Friday as investors warily awaited U.S. inflation data, while the pound nursed modest losses after Bank of England (BoE) policymakers leaned away from flagging rate rises.

Early Asia trade was steady, with the euro pinned below its 200-day moving average at $1.1930 and the yen just short of a 15-month low at 110.955 per dollar.

The dollar vaulted to its highest levels since March against the euro last week – and to its highest since March 2020 on the yen – after the U.S. Federal Reserve surprised markets by projecting interest rate rises sooner than expected in 2023.

Subsequent rhetoric from Fed chair Jerome Powell seems to have calmed nerves in bond and stock markets about hikes any time soon, but the dollar has held its gains and traders are wary of further rises if inflation is hotter than forecast.

Economists polled by Reuters expect core personal consumption expenditures index to post year-on-year gains of 3.4%, a rise even faster than the nearly three-decade high pace of 3.1% recorded last month. The data is due at 1230 GMT.

“The dollar can jump if inflation surprises to the upside,” said Joe Capurso, head of international economics at the Commonwealth Bank of Australia in Sydney. “Upside inflation surprises have been the trend in the U.S. recently,” he said.

The stronger dollar has kept other majors in check through the week, even against currencies where rate rises are likely to land sooner than in the United States.

The New Zealand dollar has crept back above its 200-day moving average to $0.7063, but it remains well shy of February highs above 74 cents. In Australia, despite booming terms of trade, the Aussie held at $0.7584.

“A more balanced dollar outlook prevails after the Fed’s decisive policy shift,” Westpac strategist Sean Callow said.

“The Australian dollar’s strong support from commodity prices produces fair value estimates in the mid-0.80s,” he said.

“Yet recent price action has been in the mid-0.70s. With risk appetite looking resilient, any narrowing in this gap probably depends on how far the (Fed)-inspired U.S. dollar recovery can extend.”

The U.S. dollar index was steady at 91.833, off a week-ago high of 92.408 but clear of troughs below 90 that it had plumbed in May.

Sterling had started to move away from its post-Fed lows, but was the weakest G10 currency overnight and fell 0.3% after the BoE failed to provide any hint it was in a hurry to hike rates and warned against “premature tightening”.

“Some in the market obviously positioned for a less dovish or a hawkish tilt,” said Tapas Strickland, director of economics and markets at National Australia Bank.

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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US Dollar - Investorsking.com

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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