On Friday, there was a decline in the US dollar as investors were evaluating the magnitude of the interest rate hike from the Federal Reserve in its meeting later this month. Moreover, Thursday saw the greenback climb to two-decade highs after a strong rally, thereby prompting investors to take some profits.
Interest rate impact
There has been a rise in the US dollar, as the Fed is expected to hike its interest rates faster and more than other central banks because inflation is touching a high of four decades. On Friday, there was a brief gain in the greenback after data showed that there was a more-than-expected increase in US retail sales in the previous month.
Market analysts said that even though the results had become a bit better than expected, it was obvious that this was primarily due to inflation. They also said that since the dollar has had a strong and long run, investors have decided to close their position on the weekend.
According to other data, there was a decline in manufacturing production for the second consecutive month in June, and consumers in the US adjusted their inflation expectations for the current month.
There was a 0.47% decline in the US dollar index for the day, as it came down to 108.04. On Thursday, it climbed to 109.29, which is the highest it has been since September 2002. There was a 0.57% gain in the euro, as it reached $1.0080. On Thursday, the single currency had come down to $0.9952, which is the lowest value since December 2002.
After data on Wednesday showed that US inflation had climbed to 9.1% in June, traders hiked up their bets for a quick hike in the interest rates by the US Fed. However, there was a decline in the odds of a hike of 100 basis points, after two of the most hawkish officials of the central bank said on Thursday that they were in favor of a 75 basis points increase.
On Friday, the President of Atlanta Fed, Raphael Bostic also cautioned that a dramatic move by the central bank could have a negative impact on positive economic trends like strong hiring.
There are two potential catalysts for the euro in the coming week. First, the European Central Bank is expected to increase interest rates by 25 basis points in its meeting on July 21st. Secondly, investors would also be keeping an eye on Nord Stream 1, the biggest pipeline for gas transportation between Russia and Germany that has been shut down for annual maintenance for 10 days.
The reopening is planned for July 21st, but the European governments are concerned that the closure might be extended in light of the sanctions against Russia. This would restrict the gas supply in Europe and disrupt winter storage plans.
There was also a 0.27% drop in the US dollar against the Japanese yen after it climbed to its highest level in 24 years on Thursday.