By Saikat Chatterjee
LONDON, June 27 (Reuters) – The U.S. greenback struggled versus its main rivals on Monday as softening inflation expectations prompted a reassessment of the prospects for aggressive rate of interest hikes however risky markets cushioned a broader decline.
Aggressive fee hike bets have boosted the greenback with an index rising to a close to two-decade excessive of 105.79 earlier this month. However with some high-frequency knowledge indicators exhibiting financial momentum beginning to cool and a broader drop in commodity costs, traders have gotten cautious.
“The greenback index is buying and selling in direction of the decrease finish of its latest buying and selling vary suggesting some vulnerability to additional weak spot,” mentioned Shaun Osborne, an analyst at Scotiabank, mentioned.
“We really feel the broader greenback rally will wrestle to increase considerably however losses are liable to stay restricted except or till a extra important bearish catalyst emerges.”
In opposition to its rivals, the greenback edged 0.2% decrease to 103.86. Earlier this month, it hit 105.79, its highest since late 2002.
Whereas slowing development considerations have weighed on sentiment, decrease inflation expectations, mainly via falling commodity costs have additionally eased the stress for increased charges.
For instance, copper is on observe for its largest month-to-month decline for the reason that pandemic-fuelled selloff in March 2020. Oil costs are set to see a month-to-month decline for the primary time this yr.
Falling commodity costs have weighed on expectations of the place U.S. rates of interest will peak subsequent yr. Greater terminal pricing of benchmark rates of interest has been a key assist for the greenback however that supply of power has light in latest days.
Futures pricing reveals merchants now anticipating the U.S. Federal Reserve’s benchmark funds fee stabilising round 3.5% from March subsequent yr, a pullback from pricing in charges zooming to round 4% in 2023.
“Broadly talking, markets have priced a decrease and earlier terminal fee from the Fed consequently, which is shaving a few of the greenback’s attraction from a yield differential foundation,” mentioned Simon Harvey, head of FX evaluation at Monex Europe.
The euro led gainers versus the greenback because the European Central Financial institution’s annual discussion board in Sintra obtained underway with ECB President Christine Lagarde and Federal Reserve Chair Jerome Powell each attending the assembly. Markets will look ahead to any indicators of future coverage strikes.
The euro is up 0.2% at $1.0580.
Commodity currencies got here underneath stress on Monday as knowledge confirmed earnings at China’s industrial corporations shrank once more, albeit at a slower tempo, in Could after a pointy fall in April.
Elsewhere, Russia’s rouble weakened within the interbank market as Russia headed for its first sovereign default for the reason that Bolshevik revolution a century in the past.
Cryptocurrencies solidified features, with the world’s greatest cryptocurrency Bitcoin up 1.4%, buying and selling at $21,170.88 after falling as little as $17,588.88 earlier this month.
(Reporting by Saikat Chatterjee; Enhancing by Muralikumar Anantharaman and Jane Merriman)
