The dollar index was flat on Tuesday, little changed, with the yen weakening to about a one-week low against the dollar, as investors awaited U.S. retail sales data and Federal Reserve minutes.
In late New York trading, the ICE U.S. Dollar Index (DXY), which tracks the U.S. dollar against six major currencies, edged down 0.05% to 106.49, rising to a high of 106.94 and a low of 106.32.
In terms of economic data, U.S. housing starts fell 9.6% in July to a one-and-a-half-year low due to rising mortgage rates and building materials prices; industrial production rose 0.6% in July, higher than market expectations.
High U.S. inflation has reinforced investor bets that the Federal Reserve will continue to raise interest rates sharply next month, prompting the dollar to recover from a six-week low last week. However, considering that the next interest rate meeting will not be held until September 20-21, and inflation and employment data will be released during this period, the market believes that the dollar transaction may be in an unstable state.
Speculation that the Fed will be more aggressive in responding to price pressures has also grown as 10-year U.S. Treasury yields remain below 3 percent and improved credit and stock market conditions have made financial conditions more accommodative.
“Financial conditions are back where they were in April, before the Fed raised rates by 200 basis points, and the Fed is almost back to square one,” said Padhraic Garvey, an analyst at ING. “The central bank has to reverse this, Otherwise, it will only be forced to become tougher.”
The Fed will release the minutes of its July meeting at 2 a.m. Taiwan time on Thursday (18th), where investors will look for signals related to the magnitude of the rate hike in September. Fed funds futures traders are now pricing in a 60 percent chance of a 2-point rate hike next month and a 40 percent chance of a 3-point rate hike.
Retail sales figures scheduled for release tonight will also provide an update on consumer conditions. The market expects that US retail sales in July will increase by 0.1% month-on-month, a sharp drop from the previous value.
The euro fell to its lowest intraday level since early August and was up 0.06% against the dollar at $1.0166 by press time. Earlier data showed Germany’s ZEW economic sentiment index fell further to -55.3, as concerns over soaring inflation and the energy crisis brought investor confidence to its lowest level since the European debt crisis.
However, Germany on Tuesday secured commitments from major gas importers to ensure adequate LNG availability in winter, reducing reliance on Russian fuels.
Adam Button, chief foreign exchange analyst at ForexLive, said: “The market is slowly pricing in the news that Europe faces a worse outcome this winter, which is the main reason why the dollar is so strong. Although the US outlook is deteriorating, it still seems to be better than Europe and Asia. most areas.”
The dollar rose 0.72% against the yen to 134.23 yen. The yen is usually affected by the U.S.-Japan interest rate differential. After last week’s data showed that U.S. inflation cooled, the market expected that the Fed would not tighten policy more aggressively. As a result, U.S. bond yields fell and pushed the yen to rise. Fed officials have expressed their views that it is necessary to continue to raise interest rates.
The Aussie eased its losses and was little changed against the US dollar at $0.7021.
The minutes of the meeting showed that the RBA believes that further rate hikes are still necessary to prevent high inflation from becoming part of expectations, but the central bank has not set a path for rate hikes, with the goal of keeping the economy running smoothly.
The New Zealand dollar was down 0.32% at $0.6344. Dragged down by global economic growth concerns, the market predicted that New Zealand’s central bank will raise interest rates four times in a row today by 2 yards, but this expectation seems to have been priced in.
The Canadian dollar rose 0.43% to C$1.2844 after economic data showed underlying inflationary pressures remained high, raising the prospect of a sharp interest rate hike from the Bank of Canada next month.
As of Wednesday (17th) Taiwan time about 6:00 Price:
The dollar index was at 106.4730. -0.0257% The euro against the U.S. dollar (EUR/USD) was quoted at $1.0169 per euro. +0.0984% GBP/USD (GBP/USD) was quoted at $1.2095. +0.3235% The Australian dollar against the US dollar (AUD/USD) was quoted at 1 AUD=0.7020. -0.0285% The US dollar against the Canadian dollar (USD/CAD) was quoted at 1.2843 Canadian dollars per US dollar. -0.4341% The U.S. dollar was quoted at 134.21 yen against the Japanese yen (USD/JPY). +0.7053%