Dollar poised for weekly gain

19 Jul 2024 , 10:07 AM

On Friday, the dollar seemed poised to end a two-week losing streak as traders pondered the US interest rate future, while the yen remained firm after Japanese inflation rose for the second month in a row, raising the chance of a rate hike.

The US dollar was on the front foot in Asian hours after a turbulent week that saw the yen, euro, and sterling make huge gains against the greenback as investors completely priced in a Federal Reserve rate decrease as early as September.

The yen traded at 157.35 per dollar after reaching a six-week high of 155.375 on Thursday, following alleged interventions by Tokyo last week that could total about 6 trillion yen ($38.14 billion), according to Bank of Japan statistics.

On Friday, data showed that core consumer prices in Japan climbed 2.6% in June, fueling market expectations that the central bank will soon hike interest rates.

In March, the BOJ left negative rates and bond yield control, signalling a transition away from a decade-long dramatic stimulus plan, with markets warming to the prospect of a rate hike at its meeting later this month.

Traders are pricing in a 41% possibility of a 10-basis point increase.

The yen has lost more than 10% versus the dollar this year, dragged down by the large gap in interest rates between the United States and Japan, and was hovering near 38-year lows at the start of the month, indicating possible measures by Tokyo.

In the United States, records reveal that the number of Americans filing new applications for unemployment benefits increased more than expected last week, despite no major shift in the labour market.

The dollar index, which measures the US currency against six rivals, rose 0.1% to 104.24, up from a four-month low of 103.64 on Wednesday. The index is expected to gain 0.17% this week, following two weeks of losses.

The Fed is set to convene at the end of July, when markets expect the central bank to keep interest rates unchanged. Traders expect 62 basis points of easing this year.

Markets have reacted to the potential of a Trump presidency by strengthening the dollar and positioning for a steeper Treasury yield curve.

Meanwhile, the euro was little changed at $1.08880, down 0.4% from the previous session, as the European Central Bank held rates constant and provided little indication of its next move.

On Wednesday, the euro reached a four-month high of $1.0947, recouping all of its losses from the previous several weeks, when it was under pressure due to anxiety over the French election.

Sterling was recently steady at 1.2941, following a 0.5% drop in the previous session as statistics indicated wages in Britain expanded at a slower pace, but was still strong enough to preserve doubts about a rate cut from the Bank of England afloat.

In other currencies, the Australian dollar fell to $0.6702, while the New Zealand dollar dropped 0.26% to $0.60295.

The Australian and New Zealand dollars were expected to fall by more than 1% this week after a high-level meeting in China failed to produce any significant stimulus measures and popular carry trades utilising the yen as a financing currency unwound.

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