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Dollar sinks to yearly lows

Daily Currency Update

The US dollar index (DXY) fell towards 100, reaching 100.110 and its lowest level in more than a year. The drop was prompted by lower-than-expected US producer and consumer price figures, which fueled speculations that the Federal Reserve might be approaching the conclusion of its cycle of increasing interest rates. In June, the annual inflation rate in the US slowed down to 3%, falling below the market's anticipated 3.1%, while the core inflation rate further eased to 4.8%. Moreover, producer prices experienced a 0.1% increase, falling short of the forecasted 0.2% increase. Although the Federal Reserve is still expected to raise rates by 25 basis points (bps) this month, traders have reduced their expectations for any additional rate hikes this year. Jobless claims for the week ending on July 8 decreased by 12,000 compared to the previous week, reaching a total of 237,000. This figure was significantly lower than the market's anticipated number of 250,000. The outcome aligns with recent data that highlights the persistently tight labor market in the US, thereby lending support to the probability of a 25 bps hike in the upcoming meeting of the Fed.

Key Movers

The euro solidified its gains above 1.10 trading near 1.1190 against the USD, reaching its highest level since February 2022. Investors believe the European Central Bank (ECB) still has tasks to accomplish in addressing inflationary pressures within the Eurozone, despite indications of economic growth slowdown and easing inflation across the region. In June, inflation in the Eurozone declined to a 17-month low of 5.5%, but the core rate remained significantly higher than the ECB's target of 2%. Presently, interest rates in the Eurozone are at 3.5%.

The GBP/USD soared above the 1.3 level for the first time since April 2022 as it trades near 1.3100, attracting investors due to its expanding interest rate advantage over other developed economies. The indication of cooling inflation in the US raised expectations that the Federal Reserve's policy tightening might be approaching its conclusion. Month-over-month GDP data released for the UK today showed the British economy is experiencing a contraction of 0.1%, in contrast to the 0.2% growth seen in April and falling short of expectations for a larger 0.3% decline.

USD/CAD trades near 1.3125 following the Bank of Canada's decision to increase interest rates by 0.25%. Governor Tiff Macklem emphasized that forthcoming policy choices will rely on incoming data, creating uncertainty in the markets regarding whether this would mark the conclusion of the Bank of Canada's tightening cycle. West Texas Intermedia (WTI) oil rose above 76, its highest level since May, WTI crude oil trades above $76 marking its highest point since May. Optimism among oil traders has been fueled by the release of weaker US inflation data. However, escalating tensions between the US and China may limit the possible increase in crude oil prices.

Expected Ranges

  • EUR/USD: 1.1111 - 1.1192 ▲
  • GBP/USD: 1.2977 - 1.3108 ▲
  • AUD/USD: 0.6776 - 0.68883 ▲
  • USD/CAD: 1.3114 - 1.3195 ▼