Global overview
The embattled greenback displayed tentative signs of stabilizing Friday after its dramatic drop this week to a string of 15-month lows. The dollar steadied but not before it recorded new 2023 lows against the euro, sterling, and Canadian dollar. The bottom fell out of the dollar this week after influential inflation data moderated more than expected and cooled to the lowest level in years. That showed concrete evidence of the Fed making substantial progress at lowering inflation back to its 2% goal. U.S. consumer prices receded to a 3% annual rate in June, the lowest level in more than two years, down sharply from a peak last year of 9.1%, the highest in 40 years. Key for the dollar will be whether the Fed scales back interest rate hikes and whether policymakers abandon their tightening bias at their coming meeting on July 26. A Fed that hikes later this month and keeps the door open to higher rate policy could at least slow the dollar’s descent.
Another day, another euro high
The euro showed tentative fatigued after it raced this week to 15-, 16- and nearly 17-month highs just below 1.1250 against its embattled U.S. counterpart. The outlook for central bank policy provides the main fuel for FX markets and diminishing expectations for U.S. interest rate hikes took a significant toll on the greenback. Euro bulls are cheering hopes for a narrowing in U.S.-euro zone interest rate differentials if the Fed stops short of delivering the two more rate hikes that it forecast in June. EUR/USD rallied nearly 3 cents, or 2.4%, this week, its strongest weekly performance so far this year.
Sterling stands at tallest level in 15 months
A decidedly bullish week for the UK pound propelled it above 1.30 for the first time since April 2022, thanks to weekly appreciation of nearly 3 cents or more than 2%. Pound bulls have significant reason to celebrate if indeed the Fed is closer to the rate hike finish line and if UK inflation next week continues a hotter than expected trend. The rate hike finish line for the Bank of England is perceived to be further around the corner, given Britain’s stubbornly high rate of annual inflation at 8.7%, nearly triple America’s 3% level.
USD/CAD tumbles to 10-month low below 1.31
A weaker U.S. dollar and higher Canadian lending rates joined forces to send the loonie skyrocketing to 10-month highs of 1.3093. The Bank of Canada this week raised its benchmark interest rate to 5% from 4.75%, as officials worry about inflation taking longer to descend back to their 2% goal. Moreover, Canada’s rate debate remains lively with it likely to be swayed by fresh data next week on domestic inflation. Consumer inflation in May moderated to nearly two-year lows of 3.4% with the June report due out July 18.
Dollar limps to finish line of worst week so far of 2023
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: July 10-14
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
