The US Dollar Slumps as Traders Anticipate Upcoming Inflation Data Release

The US Dollar Slumps as Traders Anticipate Upcoming Inflation Data Release

The US dollar fell to a three-month low ahead of the release of the US inflation report, which could confirm suspicions that the Federal Reserve is close to terminating its rate-hike campaign.

Date: July 12, 2023

Place- New Delhi, India

Dollar Index Plummets, Echoes of a Faltering Tightening Campaign

On Wednesday, The Bloomberg Dollar Spot Index dropped 0.3%, marking the weakest performance since April 14th. Economists predict that the report will indicate a slowdown in consumer-price growth for June, with the headline number possibly dropping to its lowest since March 2021.

Ken Cheung, a strategist at Mizuho Bank Ltd. in Hong Kong, anticipates this development to “reinforce bearish dollar bets.” Cheung further speculated that traders might be reducing their long dollar positions in carry trades.

Peaks in US Interest Rates, Negative Currency Betting, and Resurgent Global Currencies

The once attractive bullish dollar bets are losing their appeal as signs indicate US interest rates may be nearing a peak. The Bloomberg Dollar Spot Index has plunged over 10% since its peak in September, with hedge funds expressing a bearish outlook on the currency for the first time since March.

This week’s losses coincide with a resurgence in other Group-of-10 currencies, with the yen strengthening beyond the critical 140 per dollar mark, and the pound nearing the 1.30 mark, last reached over a year ago.

Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore, commented that “the dollar is firmly on the back foot,” anticipating a further slide in the Dollar Index.

Global Shares Rise as Investors Eye Inflation Data

Tuesday saw a retreat in the dollar, global shares rising, and an increase in oil and other commodities, underpinned by a potential expedited end to Federal Reserve rate hikes and China’s promise to support growth.

Wall Street indices all posted gains, with the Dow Jones, the S&P 500, and the Nasdaq Composite rising 0.93%, 0.67%, and 0.55% respectively.

Investors are keenly watching the upcoming inflation data, with expectations of a 3.1% rise in June’s consumer price index, compared to May’s 4% increase. This would be the lowest reading since March 2021.

The Falling Dollar: A Look Ahead

The dollar index ticked down 0.27% on Tuesday, signaling its lowest in two months, with U.S. Treasury yields retreating in unison. The yen and sterling both made gains against the dollar, reaching their highest levels in two and fifteen months respectively.

Brown Brothers Harriman currency strategists, however, maintained their positive outlook on the dollar, stating that “the fundamental story continues to favor the dollar.”

Meanwhile, investors eagerly await Wednesday’s inflation data, with the yield on the benchmark 10-year note falling 2.6 basis points to 3.980%. The Fed’s next policy meeting is scheduled for July 25-26.

Boost in Commodities and Oil Prices

A potential boost to the Chinese economy contributed to an increase in oil and other industrial commodities such as copper and iron ore.

Chinese regulators extended some policies in a rescue package introduced last November to shore up liquidity in the real estate sector. Consequently, oil prices surged, with Brent crude rising by 2.09% and U.S. crude increasing by 2.38%.

Gold prices also reached a near three-week high, with spot gold adding 0.36% to reach $1,931.95 an ounce.


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