Dollar Falls As Rate Hike Bets Fall

On Monday, the US dollar fell against a basket of other currencies, as it came down from the highest level it had reached in two decades in the last week. This was because traders trimmed their bets on the aggressiveness of the US Federal Reserve in terms of raising interest rates in its policy meeting scheduled for the end of the month.

A small rebound in the risk appetite of investors for riskier assets also affected the demand for the greenback, which is regarded as a safe-haven asset.

Interest rate hike


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On Friday, the most hawkish officials of the Federal Reserve indicated that they had full intention of sticking to an interest rate hike of 75 basis points in the meeting scheduled for July 26th to 27th. However, it is possible that a recently high reading of inflation could result in larger increases later in the year.

Traders in futures contracts that are linked to the short-term policy rate of the US Fed had been leaning towards a hike of 100 basis points. But, they now shifted their bets significantly in favor of a hike of 75 basis points in the upcoming meeting.

Market analysts said that this reversal was a clear one from last week’s pricing, as the effect of the inflation figures faded. Moreover, the Governor of the US Fed, Christopher Waller also cast doubt on a hike higher than 75 basis points. The Governor had said on Thursday that despite the data from the Labor Department showing that inflation had climbed to 9.1% in June, he was in support of a 75 basis points increase in the interest rates.

The University of Michigan also shared preliminary data on Friday, which showed that inflation is expected to be 2.8% in five years, which would be lower than the 3.1% predicted in June.

Dollar falls

The US dollar recorded a decline of 0.51% against a basket of major currencies to reach 107.29. On Thursday, the index had climbed to 108.65, which is high in two decades.

Market analysts said that some of the weakness in the greenback on Monday was because of investors taking profits after a strong rally. Nonetheless, investors still remained mostly remained hesitant in terms of taking a bearish approach towards the US dollar.

Other currencies

In recent sessions, there has been a great deal of selling pressure on the euro because of uncertainty about the gas supplies in the eurozone. The single currency also trimmed its gains after a report that Gazprom in Russia had declared force majeure to at least one customer on European gas supplies.

There was a 0.65% rise in the euro last, which brought it close to $1.01545. A 0.28% gain was also recorded in the New Zealand dollar after the inflation reading turned out to be alarmingly high and gave rise to the probability of more aggressive increases in the interest rates. A 0.68% gain was also recorded in the Australian dollar, which is regarded as a proxy for risk appetite.


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