18-7-2023 (SINGAPORE) The US dollar remained unstable, hovering close to a more than one-year low against major currencies on Tuesday as investors awaited new developments to assess whether the greenback will continue to decline following last week’s weaker-than-expected US inflation report.
The US dollar index, which measures the currency against a basket of six other currencies, edged slightly lower to 99.84 during early Asia trade, after reaching its lowest level since April 2022 on Friday.
Last week, the index recorded its worst performance of 2023 as data revealed a further decline in US inflation, with consumer prices showing their smallest annual increase in over two years. This eased pressure on the Federal Reserve to continue raising interest rates.
“I think the dollar can stay under selling pressure,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia. “Markets are focused on the end of the FOMC tightening cycle.”
Meanwhile, the euro reached a new 17-month high against the greenback at $1.1256, while the pound gained 0.15% to $1.3094, not far from last week’s peak of $1.3144, also the highest since April 2022.
Money markets have largely priced in a 25-basis-point interest rate hike from the Federal Reserve at its upcoming policy meeting, although they anticipate rates to start coming down as early as December.
Conversely, investors expect the European Central Bank and the Bank of England to have more room for further interest rate increases.
Elsewhere, the Japanese yen saw a slight rise to 138.66 per dollar, maintaining a more than 4% lead from a seven-month low it hit last month.
Investors are now focused on the Bank of Japan’s (BOJ) monetary policy meeting next week, waiting to see if the central bank will begin phasing out its ultra-accommodative policy stance.
“More market participants have factored in the chances of BOJ widening its yield curve control policy’s trading band by 25 basis points in the next meeting,” said Ryota Abe, an economist at SMBC.
In other currencies, the Australian dollar trimmed some earlier gains after the minutes of the Reserve Bank of Australia’s July policy meeting indicated that the decision to keep interest rates unchanged was due to clear policy restrictions. The Aussie was last 0.07% higher at $0.6821.
The New Zealand dollar, on the other hand, recovered slightly from losses in the previous session, rising 0.1% to $0.6332.
The Antipodean currencies, often used as indicators for the Chinese yuan, experienced a dip on Monday after China’s second-quarter GDP data revealed a fragile pace of growth due to weakened demand both domestically and internationally.
The offshore yuan saw a marginal increase to 7.1749 per dollar.
“Everyone is just waiting for the (Chinese) authorities to come out with concrete measures,” said Khoon Goh, head of Asia research at ANZ.
“The rhetoric coming out from the government has been, in a sense, saying they want to support growth, but I think for the markets, they actually want to see the follow-up, concrete action to back up those words.”
