US dollar slumps as market sentiment improves
Monday 18 July, 2022
Daily Currency Update
Demand for the US dollar tumbled on Monday after touching parity against the euro for the first time in almost 20 years last week. Last week's University of Michigan Consumer Sentiment came better than expected, with the index topping 51.1 vs. an estimated 49.9. The positive in the report is that inflation expectations tempered, with consumers seeing inflation at 2.8% over a 5-year horizon, lower than 3.1% in June. US equities also rallied on Friday in response to a new round of bank earnings and promising economic data as concerns of a 100-basis-point rate hike from the US Federal Reserve to combat inflation subsided. The USD has soared this year thanks to a combination of rising US interest rates and struggling economies in Europe and China. The surprise interest rate hike of 100 basis points by the Bank of Canada last week prompted speculations that the US Federal Reserve could follow at its July 27 meeting. However this is not certain, and a smaller increase is still possible. The US Dollar Index was down 0.75% at 107.25 at the time of writing.
Key MoversIt's a big week ahead for the euro as the market awaits the interest rate decision this Thursday from the European Central Bank. The euro tumbled to a 20-year low against the USD last Thursday and made some gains back toward the end of the week but was still trading very close to parity. It closed at 1.0084 last Friday, representing a fall of 1.03% over the previous week. Europe waits anxiously to see if Russia will reopen the flow of gas through the Nord Stream 1 pipeline on July 21. The ECB will finally start raising interest rates this week as the central bank has pre-committed to a 25 basis point rise. The question is whether the ECB will pre-commit the size of September’s hike, with speculation of a possible 50 basis point hike providing some support for the euro. UK CPI data is due on Wednesday and political uncertainty around the next UK Prime Minister could impact the pound this week. EURUSD was trading at 1.0160 at the time of writing.
- EUR/USD: 1.0081 - 1.0199 ▲
- GBP/USD: 1.1865 - 1.2029 ▲
- AUD/USD: 0.6788 - 0.6853 ▲
- USD/CAD: 1.2901 - -1.6977 ▼