USD Reaching Two-Week High, Investors are Waiting
On Monday, the U.S. dollar reached a two-week high after robust economic data in the past week. The change prompted investors to reassess their position on whether the Fed will keep the interest rates low. Investors are anticipating this in this week’s monetary policy meeting.
Other forex markets remained quiet as investors took a laid back position on placing their bets before the meetings. The Federal Reserve meeting, a gathering of European bankers in Portugal and Bank of England will influence interest rate decision to be made on Thursday.
A boosted U.S. retail sales records on Friday slimmed down the possibilities of a rate cut this week and raised the dollar. Although the Chairman of Federal Reserve, Jerome Powell is thought to implement future rate cuts.
The latest positioning data indicate that investors are taking long positions on the dollar but only to levels reached in March.
The levels of expectation for a rate cut during the June 18-19 meeting fell sharply after the robust retail sales data. The change was from 28.3% on Thursday to 21.7% after the release of the local data. The report is according to FedWatch tool by the CME group. Despite the fall in rate cut expectation, monetary easing anticipation remains high at 85%.
The Euro will most likely meet a lot of hurdles in the coming days, according to analysts’ prediction.
EUR put-downs have been Brexit, trade wars, Italy and European Central Bank leasing. These have been preventing the EUR/USD pair from hatching out of $1.10-$1.15 range by the end of the year. Though the dollar has had a lenient environment this summer.
The dollar index, which measures the strength of the greenback against a basket of rival currencies was unmoved at 97.569. This position that closed in enough to the two-week high previously achieved early in the season. The euro barely changed at $1.1209.
The U.S.-China Standoff
Looming fears from the long-standing stalemate between China and the U.S. have driven rate cuts in several countries. New Zealand, India, Malaysia, Philippines, and Australia took a hit as a defensive tact in case of a global recession.
The European Central Bank has provided for more stimulus. While the Bank of Japan is primarily expected to honor its commitment to uphold its stimulus for a long while.
Markets are preparing for a Fed rate cut in July. Meanwhile, analysts argue that much will pivot from the U.S.-China trade talks in a bid to resolve the long-standing conflict. The high uncertainty, especially around trade, would make the talks a bit more complicated. The post-G20 meeting would perhaps lead to a de-escalation of tensions or reopening of negotiations rather than a tangible result.
Against the yen, the dollar edged up 0.15% last Friday at 108.60.
The British pound glided further towards a 2019 low, reaching $1.2575, its weakest level since the beginning of the year. Investors have less confidence that Boris Johnson, the current front runner to take the Prime Minister position, will deliver a Brexit deal.
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