Dollar Dips on Hopes of Peaking Inflation

On Tuesday, the US dollar index, which measures the currency against a basket of others, fell from earlier highs, as Wall Street stocks surged on hopes that inflation may have finally hit its peak. However, the greenback still managed to climb against the Japanese yen to reach a 20-year high. Even though gains on Wall Street were a tad dented because of Target, most stocks saw gains as the profit warning from retailers was considered a sign that inflation might be coming down soon. There had been an increase in Treasury yields overnight, as they reached a high of three and a half weeks.

This was primarily because of concerns that the Federal Reserve would continue its aggressive monetary tightening policy in order to tame inflation. But, the yields also saw a fall because the interest rates hike from the central bank might slow down if inflation really does taper off. Market analysts said that markets had already priced in what the Federal Reserve had said, but there was hope that inflation may have peaked and could begin coming down. Since inventory accumulation has become a problem for retailers, some prices will come down and this might also affect rates.

On Friday, the latest inflation numbers for the last month are due for a release. There was a 0.176% fall in the dollar index to 102.270, while the euro had risen 0.14% to reach $1.0709. On May 13th, the dollar index had climbed to 105.01, which was a 20-year high. However, it came down to a level of 102 after strong payroll numbers on Friday helped the currency in recording its first weekly gain in the last three. Meanwhile, the yen fell against the dollar to 132.99, which is the lowest it has been since April 3rd, 2002. Since the approach of the central banks of Japan and the US diverge, the greenback has been consistently strengthening against the yen.

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Governor of Bank of Japan, Haruhiko Kuroda said on Tuesday that the economy benefits from a weak yen and that was their priority. There was a 0.55% decline in the yen against the greenback, as it came down to 132.59. Meanwhile, sterling recorded an increase of 0.53% in the day and was trading at $1.2596. The British pound climbed against the US dollar, after it had fallen to a three-week low because of the uncertainty created by the no-confidence vote of Prime Minister Boris Johnson.

There was a 0.65% increase in the Australian dollar against the greenback, as it reached $0.724. This was after the interest rate was increased by the Reserve Bank of Australia by 50 basis points, bringing it to the highest it has been since 2022. It also said that there would be more tightening in the future in order to tame surging inflation. The European Central Bank (ECB) is going to meet this Thursday for deciding its policy, while the US Federal Reserve is scheduled to meet in the coming week. The crypto market saw Bitcoin fall 3.03%, after it had climbed in early trading.

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