US dollar weakens against the euro and pound

Daily Currency Update

The US dollar showed some modest losses as European markets opened on Tuesday 18^th July, losing ground for the second session in a row and falling below 100.00 on the US Dollar Index.

The US dollar remains under heavy pressure and trades close to recent 15-month lows against the pound. Investors anticipate that the US Federal Reserve will likely raise rates by another 25 bps at the July 26 meeting. Whether there will be any further interest rate increases beyond July remains unclear for the time being.

The euro to US dollar exchange rate peaked at a market rate of 1.1271 on Tuesday as Bundesbank President and European Central Bank Governing Council member, Joachim Nagel, agreed in an interview yesterday that a 25 basis point hike from the ECB seems likely at their next meeting.

Wednesday will see the release of greatly anticipated UK inflation data (Consumer Price Index). The release of the data will be key for the Bank of England (BoE) as to whether it will raise interest rates by 0.25% or 0.5% at its next policy decision meeting.

Due to the uncertainty surrounding Wednesday’s inflation data the pound is slightly weaker against the euro. On July 11^th the pound reached year highs of 1.1758 against the euro and is now trading at a market rate of around 1.1620. The euro is currently holding on to gains across the board as the ECB is expected to continue its interest rate hike spell beyond July. Inflation is hotter in the Eurozone than in the US so further interest rate hikes may be warranted.