Title: Dollar Index Plummets to Two-Month Low as Fed Tightening Cycle Nears an End
Date: 11th August 2020
The U.S. dollar sank to a two-month low during European morning trade on Tuesday as speculation grew that the Federal Reserve was preparing to end its tightening cycle. Conversely, the British pound surged to a 15-month high following encouraging data that highlighted rising salary levels in the United Kingdom.
As of 04:29 am Eastern Time, the dollar fell 0.23% to 101.412 on the dollar index, dropping to its lowest level since mid-May. At the same time, the benchmark U.S. Treasury yield stood at 3.968 percent, in contrast to the previous 4.213 percent.
Several Fed officials stated on Monday that while additional interest rate hikes may be necessary to combat persistent inflation, the current monetary policy tightening cycle is coming to a close. Citing signs of a slowing economy and a decrease in inflation rates, these officials implied that further interest rate hikes may not be required.
Despite the anticipation of a 25 basis point increase later this month, the market’s focus now shifts to the June release of the annual rate of Consumer Price Index (CPI). A strong inflation figure could prompt another rate hike from the Federal Reserve later this year, yet the consensus suggests that the cycle of rate hikes is nearing completion.
In a contrasting move, the British pound soared 0.4% to 1.2905 against the dollar, driven by the latest employment data from the UK showing record growth of 7.3% in June. However, this robust performance places significant pressure on the Bank of England to continue tightening interest rates, particularly in comparison to other G7 countries.
The pound also reached a two-month high on Tuesday, rising 0.2% to 1.1018 against the euro. This surge followed a 6.4% increase in the average salary level in the previous month, breaking the downward trend observed since the beginning of the year.
In Asian markets, currencies experienced mixed movements. The yen retraced from seven-month lows as U.S. Treasury yields declined, causing the yen to fall 0.5% to 140.57. Meanwhile, the yuan reached a two-week high, buoyed by the strong central parity rate set by the People’s Bank of China. The yuan weakened 0.37% to 7.2046 against the dollar and 0.24% to 7.2119 against the euro.
Additionally, the Australian dollar saw a 0.2% increase to 0.6691, capitalizing on overall improved market sentiment.
As the prospects of the Fed tightening cycle coming to an end continue to unfold, investors and analysts eagerly anticipate the upcoming CPI data release, where inflation figures will play a crucial role in determining the trajectory of interest rates in the near future.
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Compiler: Liu Chuan