Fed Meeting Begins Next Week, Focus on Rate Hikes
In European morning trading on Thursday (20th), the US dollar index fell slightly, while the Australian dollar rebounded due to strong employment data and the pound continued to weaken. The dollar, measuring the trend of the dollar against six major currencies, was down 0.06% at 99.927, after hitting a 15-month low on Tuesday.
Traders began adjusting their positions in response to next week’s Federal Reserve meeting. It is widely expected that the Fed will raise interest rates by 25 basis points. However, the main focus of the market is whether the Fed will signal a halt to rate hikes after July, given recent weak performance.
The pound continued its decline, falling 0.18% to 1.2914. This comes after UK inflation fell more than expected in June, weakening expectations for a further increase in interest rates. The possibility of British interest rates rising to 6% from the current 5% has been ruled out.
The euro rose slightly to 1.1209, raising uncertainty about the European Central Bank’s interest rate outlook. While another rate hike is expected at the upcoming meeting, policymakers have been cautious about future decisions. Economists are split on further interest rate hikes, with 35 out of 75 predicting none and 40 predicting a 25 basis point hike in September.
The Australian dollar surged 0.84% to 0.6831 after data showed stronger-than-expected job growth in June. This could increase the odds of a rate hike by the Reserve Bank of Australia. Meanwhile, the yen fell 0.10% to 139.53 ahead of a policy meeting next week.
In China, the yuan fell to 7.1805 after the People’s Bank of China kept the LPR rate unchanged. The central bank also announced measures to facilitate cross-border financing and stabilize the exchange rate. Additionally, China’s Ministry of Finance announced an increase in planned treasury bond issuance in Hong Kong.
Investors will be closely watching the outcome of next week’s Fed meeting for clues on future rate hikes.