US Dollar Rebounds as UK Inflation Weakens
The US dollar has gained ground at the beginning of trading in Europe after hitting a 15-month low. The dollar index, which tracks the currency against a basket of other major currencies, rose 0.2% to 99.858, recovering from a low of 99.362 on Tuesday. This recovery is attributed to the publication of US data for June, which showed signs of continued consumer resilience despite lower-than-expected headline figures. As a result, expectations for an interest rate hike this month remain unchanged.
Meanwhile, sterling fell after UK inflation data came in weaker than expected. The pound dropped 0.7% against the dollar to the level of 1.2945, following a decline in the year-on-year inflation rate from 8.7% in May to 7.9% in June, below the expected 8.2%. Although the UK’s Consumer Price Index is moving away from its 41-year high reached in October 2020, it remains well above the Bank of England’s 2% target. As a result, the market anticipates another 100 basis points increase in interest rates this year.
The euro also experienced a decline, awaiting the final reading of the Consumer Price Index for June. The currency fell 0.3% against the dollar to the level of 1.1198, moving away from its recent peak of 1.1276. The final reading for June is expected to confirm a 5.5% rise in inflation in annual terms, a decrease from the previous month’s 6.1%. The European Central Bank is expected to raise interest rates again at its upcoming meeting, but the euro weakened after a member of the Governing Council, Klaas Knot, suggested that the rate hike debate may be put on hold after July.
In other currency news, the Japanese yen is expected to rise 0.3% against the dollar, reaching the level of 139.62, ahead of the Bank of Japan’s monetary policy meeting next week. On the other hand, the Australian dollar is down 0.5% against the US dollar, reaching the level of 0.6781. Meanwhile, the Chinese yuan is up 0.5% against the dollar, reaching 7.2171, despite reports of a slowdown in China’s economic recovery in the second quarter.
Overall, the currency markets continue to experience volatility as economic data and central bank decisions influence the value of major currencies. Traders and investors are closely watching for any shifts in interest rate expectations and inflation trends that could impact currency movements in the coming weeks.