Dollar Holds Decline on Dovish Fed View
The dollar index held below 100 on Monday after losing more than 2% last week and sinking to its lowest levels in fifteen months, as softer-than-expected US inflation data raised hopes that the Federal Reserve may be close to the end of its current monetary policy tightening cycle.
The US consumer price index (CPI) rose 0.5% in June, below expectations for a 0.6% increase. This was the lowest reading since February 2022.
The core CPI, which excludes food and energy prices, rose 0.3% in June, also below expectations for a 0.4% increase.
The soft inflation data has led to speculation that the Fed may be less aggressive in raising interest rates in the coming months.
Some analysts believe that the Fed could even start cutting rates as early as next year.
The dollar’s decline has been a boon for other currencies, such as the euro and the Japanese yen.
The euro rose to its highest level against the dollar in over a year on Monday.
The yen also strengthened against the dollar, reaching its highest level in two months.
The dollar’s decline is likely to continue in the near term, as the Fed is expected to keep interest rates on hold for the rest of the year.
However, the dollar could start to rebound if the Fed signals that it is ready to raise rates again in 2023.
Other key developments that could influence markets today:
- ECB Board member Fabio Panetta speaks at a G20 meeting in India.
- ECB President Christine Lagarde gives a pre-recorded speech.
- Federal Reserve Bank of New York issues Empire State Manufacturing Survey for July.
The Forex Signal bullish team advises you
If you are holding US dollar assets, you may want to consider selling them in the near term, as the dollar is likely to continue to decline.
If you are holding assets in other currencies, such as the euro or the yen, you may want to consider buying them, as they are likely to appreciate against the dollar.
It is important to monitor the latest developments and adjust your investment strategy accordingly.