- Dollar battered on expectations of US interest rates to peak in July
- Euro, Yen, Aussie, Kiwi, Sterling and Franc hit new highs
- Dollar index below 100.5, lowest since April 2022
SINGAPORE, July 13 (Portal) – The flagging dollar was pushed further lower in Asia on Thursday as traders took surprisingly slow US inflation as a sign that US interest rate hikes will be all but complete by the end of the month .
The dollar has been in a steady downtrend for about six weeks, but on Wednesday it experienced its worst performance in five months – falling more than 1% against the euro to its lowest level in more than a year – as the US economic slowdown Inflation gave confidence to dollar sellers.
The euro hit a fresh 15-month high of $1.1148 in Asia on Thursday and the yen hit its highest level since mid-May at 138.08 per dollar. The US dollar index edged down to 100.42, its lowest level since April 2022.
US core inflation came in at 0.2% in June, while the market expectation was at 0.3%. Annual headline CPI fell to 3% and has since declined since peaking at 9.6% a year earlier.
Interest rate futures showed that markets are fully pricing in a Federal Reserve rate hike later this month, but expectations of further rate hikes are being pushed back.
“The view is that the Fed is very likely to hike rates at the end of July and that will be the last,” Westpac strategist Imre Speiser said.
The New Zealand dollar is up 0.5% to a two-month high of $0.6332 and the Australian dollar is up 0.4% to a three-week high of $0.6813.
Movements in other currencies were smaller but still brought fresh milestones as traders anticipate the dollar to fall further. The Swiss franc hit its highest level since 2015 at $0.8655 per dollar, and the pound sterling hit its highest level in 15 months at $1.3019.
The Chinese yuan stabilized near a one-month high of 7.1675 per dollar, held back by weak trade data that showed exports fell the sharpest in three years.
Emerging market currencies also rallied across Asia, led by the Malaysian ringgit, which rose 1% to the strong side of 4.6 per dollar. The Thai baht edged higher as traders waited on whether Prime Minister Pita Limjaroenrat could secure a majority in parliament.
In Scandinavia, where inflation appears to be stubborn and central bankers forecast further rate hikes, currencies posted additional gains compared to Thursday’s gains, with the Swedish and Norwegian kroner expected to gain 5% weekly.
“We believe the dollar’s recent underperformance reflects a qualitative shift in market comfort as the US dollar is held short as the Fed’s final policy rate appears increasingly capped,” Standard Chartered currency analyst Steve Englander said.
Two-year government bonds, which track interest rate expectations, continued to rally overnight, sending yields down 4 basis points to 4.71%.
One outlier in dollar selling may have been the yen, which led to gains. It is up more than 4% in five sessions but paused in Asia as focus turned to whether the Bank of Japan (BOJ) may adjust yield control policy soon.
The closely-watched 10-year yield slipped slightly to 0.46% on Thursday, well below the BOJ’s 0.5% ceiling, suggesting only modest speculation about a policy change as the possibility of an easing in inflation looms slightly reduced pressure.
“Governor (Kazuo) Ueda has so far maintained that the risks of moving too early outweigh the risks of moving too late,” said DBS strategist Chang Wei Liang.
“The Fed entering the final stages of rate hikes certainly provides some relief and allows the BOJ to normalize monetary policy at its desired pace.”
European Central Bank meeting minutes, European industrial production data and monthly UK GDP are due on Thursday.
Reporting by Tom Westbrook; Edited by Jamie Freed and Kim Coghill
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