Currency Hedger No Comments

Euro consolidates near four-week top, above mid-1.1400s amid mixed Fed cues, geopolitics

  • EUR/USD struggles to attract follow-through buying amid mixed fundamental cues.
  • Receding Fed rate hike bets keep USD bulls on the defensive and support spot prices.
  • Escalating US-Iran tensions and inflation fears help limit USD losses, capping the pair.

The EUR/USD pair holds steady above the 1.1450 level during the Asian session on Thursday and consolidates its strong gains registered over the past two days, to the highest level since June 18.

The US Dollar (USD) struggles to attract any meaningful buyers and languishes near a four-week low, touched on Wednesday following the release of the US Producer Price Index (PPI). In fact, the US Bureau of Labor Statistics (BLS) reported that the PPI unexpectedly fell 0.3% in June. This comes on top of a soft US Consumer Price Index (CPI) report on Tuesday and further prompts traders to trim their bets for an immediate rate hike by the US Federal Reserve (Fed). The outlook, in turn, keeps USD bulls on the defensive, which is seen as a key factor acting as a tailwind for the EUR/USD pair.

Meanwhile, the US-Iran conflict has intensified since the beginning of this week, with US forces launching a fresh round of airstrikes targeting Iranian missile and drone infrastructure on Wednesday. Tehran, on the other hand, has responded with retaliatory drone and missile attacks on US-linked military facilities across the region. Adding to this, the US naval blockade of Iranian ports and the closure of the Strait of Hormuz support elevated crude oil prices. This fuels concerns about energy-driven inflation and revives hawkish Fed expectations, limiting USD losses and capping the EUR/USD pair.

Traders now look forward to the US economic docket – featuring monthly Retail Sales, the Philly Fed Manufacturing Index, and the usual Weekly Initial Jobless Claims. This, along with speeches from influential FOMC members, would drive the USD demand and provide some impetus to the EUR/USD pair. Nevertheless, the aforementioned mixed fundamental backdrop warrants some caution before placing fresh bullish bets and positioning for any further appreciating move.

Currency Hedger No Comments

South Korean Won edges up against US Dollar as BoK hikes interest rates

  • The South Korean Won ticks up against the US Dollar as BoK raises interest rates for the first time in three-and-a-half years.
  • The BoK was expected to hike policy rates to counter persistent inflationary pressures.
  • Traders have dialed down the Fed’s interest rate hike expectations as US inflation cools down.

The South Korean Won (KRW) reflects broader strength against the US Dollar (USD) as the Bank of Korea (BoK) delivers its first interest rate hike in three-and-a-half years, raising rates by 25 basis points (bps) to 2.75%. The USD/KRW pair gives back slight early gains and ticks down to near 1,484.68 in the Asian trade on Thursday.

The pair will likely remain firm as the BoK has kept the door open for further interest rate hikes, in an attempt to stabilize a slumping KRW and tame persistent price pressures. “We will respond until inflation stabilizes to BoK’s target level,” BoK Governor Hyun-Song Shin said in a statement. Shin added, “Demand side price pressure may need careful monitoring as it can turn into stronger inflationary pressure if robust increase in Gross Domestic Income (GDI) sustained.”

The Asian currency has been outperforming the US Dollar for over two weeks, as market participants had already priced in an interest rate hike by the BoK.

Meanwhile, the US Dollar strives to regain ground after a sharp sell-off in the last two trading days. As of writing, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades marginally higher to near 100.50.

The USD Index fell sharply in the past two trading days as soft United States (US) inflation figures on both the retail and the wholesale level have forced traders to reconsider Federal Reserve (Fed) interest rate expectations.

According to the CME FedWatch tool, the odds of the Fed delivering an interest rate hike in the July meeting have dropped significantly to 10.2% from 31% recorded a week ago.

Currency Hedger No Comments

British Pound weakens below 1.3550 on renewed US strikes on Iran

  • GBP/USD softens to around 1.3530 in Thursday’s early Asian session. 
  • The US military launched another wave of strikes against Iran. 
  • Rising tensions in the Middle East have prompted traders to increase bets on BoE rate hikes this year. 

The GBP/USD pair declines to near 1.3530 during the early Asian session on Thursday. The British Pound (GBP) weakens against the US Dollar (USD) as renewed conflict and shipping disruptions in the Strait of Hormuz have reignited energy-driven inflation risks. Traders brace for the UK monthly Gross Domestic Product (GDP) report and the US Retail Sales data, which are due later on Thursday. 

The US military said it has launched another wave of strikes against Iran in a further effort to keep the Strait of Hormuz open, per the Guardian. Explosions were reported late on Wednesday on Iran’s Qeshm Island, Bandar Abbas, and locations in the Sistan-Baluchestan province.

Iran’s top negotiator, Mohammad Bagher Ghalibaf, said that if Iran did not benefit from its memorandum of understanding with the United States, “We have no reason to adhere to such an understanding.” Rising tensions in the Middle East could boost a safe-haven currency such as the Greenback and act as a headwind for the major pair in the near term. 

Andy Burnham is expected to be officially named UK Prime Minister on July 20, pushing the focus onto his choice of finance minister, given the nation’s shaky public finances.

Traders raise their bets on rate hikes from the Bank of England (BoE) this year, given the expected impact on inflation from higher oil prices.

Money markets are fully pricing in a hike by the November policy meeting, with a second rate hike priced in by April 2027, according to Reuters. Before the US-Iran war, traders had been expecting the BoE to lower interest rates twice this year.

Currency Hedger No Comments

Japanese Yen strengthens on intervention warning, cooling US inflation

  • USD/JPY edges lower to around 162.15 in Thursday’s Asian session. 
  • Japan’s Katayama said ready to take appropriate action on currency anytime as needed. 
  • Cooling US inflation curbs Fed rate hike bets. 

The USD/JPY pair loses ground to near 162.15 during the Asian trading hours on Thursday. The Japanese Yen (JPY) strengthens against the US Dollar (USD) after verbal intervention from Japanese authorities. Traders await the release of the US June Retail Sales data later on Thursday for fresh impetus. 

Traders remain on alert for possible intervention from Japanese officials. On Thursday, Japan’s Finance Minister Satsuki Katayama said that the authorities are ready to take appropriate action on currency anytime as needed. She added that the officials will track market trends and economic data to ensure fiscal sustainability. 

Softer-than-expected US inflation data reinforced bets that the US Federal Reserve (Fed) can stay ‌patient on interest rate hikes, weighing on the Greenback. Data released by the US Bureau of Labor Statistics (BLS) on Wednesday showed that the US Producer Price Index (PPI) rose by 5.5% YoY in June, versus 6.0% in May (revised from 6.5%). This reading came in below the market consensus of 6.2%. 

On a monthly basis, the PPI declined by 0.3%, compared to the 0.6% increase recorded in May (revised from 1.1%) and improved compared with the estimate for no change.

The probability for a rate hike in July was slashed to 9.6%, versus a 45% implied ‌probability at the start of the week. Markets still see even odds of at least a 25 basis points (bps) increase in September, according to the CME FedWatch tool. 

Currency Hedger No Comments

Swiss Franc holds losses as US Dollar recovers on Middle East tensions

  • USD/CHF remains stronger as the US Dollar recovers, fueled by safe-haven buying and prolonged high Fed rates.
  • June CPI and PPI reports fell below market expectations, temporarily easing immediate fears of further rate hikes.
  • Swiss Franc safe-haven demand, fueled by oil supply disruptions and rising inflation fears, points to further downside for USD/CHF.

USD/CHF inches lower after opening at a bullish gap, remaining in positive territory and trading around 0.8060 during the Asian hours on Thursday. The pair holds ground as the US Dollar (USD) recovers its daily losses amid rising risk aversion, which could be attributed to United States (US)-Iran tensions boosting oil prices and sparking fresh inflation concerns. This geopolitical friction threatens to prolong the Federal Reserve’s (Fed) higher interest rate environment.

The Guardian reported that the US Central Command (CENTCOM) launched another wave of strikes as part of a concerted effort to keep the critical Strait of Hormuz open. In a direct escalation of hostilities, CENTCOM confirmed that US aircraft fired missiles into an oil tanker’s smokestack within the strategic passage, effectively disabling the vessel and keeping global markets on edge.

Amid this escalating conflict in the Middle East, traders are closely assessing the Federal Reserve’s policy outlook in light of recently softened US inflation data. Tuesday’s US Consumer Price Index (CPI) declined to 3.5% in June from the three-year high of 4.2% set in May, coming in well below the market expectation of 3.8%. This weaker consumer inflation data initially helped reduce immediate concerns that the Fed would soon raise interest rates.

CME FedWatch Tool suggests that markets scaled back expectations for a Fed rate hike in September, with the implied probability falling to around 44% from 50% just a day earlier. However, because the interim US-Iran peace agreement reached last month has effectively unraveled, June’s inflation data does not yet capture the economic impact of this latest military escalation between the US and Iran.

Further supporting this cooling trend, Wednesday’s data showed the US Producer Price Index (PPI) declined to 5.5% on a yearly basis in June, down from 6% in May and below the market expectation of 6.2%. On a monthly basis, the PPI dropped by 0.3%, a notable shift from the 0.6% increase recorded in May and an improvement compared to analysts’ estimates of no change.

The USD/CHF pair faces further downside as rising inflation fears, triggered by oil supply disruptions, fuel safe-haven demand for the Swiss Franc (CHF). Meanwhile, the Swiss National Bank (SNB) maintained its policy rate at 0%. The central bank reconfirmed its readiness to step into the foreign exchange markets to prevent an excessive appreciation of the franc and shield the economy from imported inflation.

Currency Hedger No Comments

Senior BoJ official: Delay in adjustment amid high inflation risk could trigger economic downturn

Senior officials from the Bank of Japan (BoJ) said on Thursday that a delay in stimulus adjustment amid high inflation risk could trigger an economic downturn. 

Key quotes

Delay in stimulus adjustment amid high inflation risk could trigger economic downturn. 

Suitable monetary policy would ensure stable inflation, place economy on sustainable growth trajectory. 

When upside inflation risk high as is the case now, delay in adjusting degree of stimulus could materialise such risk, lead to economic downturn in future.

Market reaction 

At the time of writing, USD/JPY is down 0.06% on the day at 162.09.

Currency Hedger No Comments

Rupee Remains Under Pressure

The Indian rupee hovered around 96.2 per dollar, remaining under pressure after reaching eight-week lows as sentiment weakened on rising crude oil prices. Brent crude climbed above $85 per barrel amid escalating tensions between the US and Iran, raising concerns over potential supply disruptions through the Strait of Hormuz and increasing India’s oil import bill. The rupee has fallen about 1.7% so far this month, moving closer to its record low reached in May. Meanwhile, the positive sentiment from the Reserve Bank of India’s recent measures to attract dollar inflows has largely faded, prompting traders to resume buying dollars on dips in anticipation of further rupee weakness. Additional pressure came from more than $14 billion in overseas investment announcements by Indian companies early in the fiscal year, boosting demand for foreign currency, while foreign portfolio outflows and higher oil imports continued to weigh on the rupee and India’s foreign exchange reserves.

Currency Hedger No Comments

New Zealand Dollar Trades Near 6-Week High

The New Zealand dollar hovered near a six-week high at around $0.583, supported by expectations that the Reserve Bank of New Zealand will continue tightening monetary policy, alongside broad weakness in the US dollar. Markets widely expect the RBNZ to deliver another rate hike in September, with the OCR seen reaching at least 3.0% by the end of the year. RBNZ Chief Economist Paul Conway said earlier this week that renewed conflict in the Middle East could fuel inflationary pressures, reinforcing the case for further policy tightening following last week’s first rate increase in more than three years. Meanwhile, the greenback hovered near a one-month low as investors scaled back bets on a near-term Federal Reserve rate hike after softer-than-expected inflation data. However, escalating geopolitical tensions remain a downside risk for the New Zealand dollar, as heightened uncertainty could weaken global risk appetite and weigh on risk-sensitive currencies such as the kiwi.