Home Interest rate Dollar retreats as rate hike bets ease

Dollar retreats as rate hike bets ease

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US dollar and euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

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NEW YORK, July 18 (Reuters) – The U.S. dollar eased against a basket of currencies on Monday, retreating from a two-decade high hit last week as traders cut bets on the aggressiveness of the Federal Reserve to raise rates at its meeting. later this month.

A modest rebound in investor appetite for riskier assets also weighed on demand for the safe-haven currency.

Federal Reserve officials signaled on Friday that they are likely to stick to an interest rate hike of 75 basis points at their July 26-27 meeting, although a recent high reading in the inflation could still justify larger-than-expected increases later in the year. Read more

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Futures traders tied to the Fed’s short-term key federal funds rate, which had been tilting toward a one-percentage-point interest rate hike, shifted their bets firmly in favor of a increase of 0.75 percentage points at the next meeting. .

“(It’s) a clear reversal in this price from last week after the UMich 5-year inflation expectation figure faded, and after (Fed Governor Christopher) Waller has cast significant doubt on a bigger upside,” said Michael Brown, head of market intelligence at Caxton in London.

On Friday, the University of Michigan’s preliminary consumer survey for July showed consumers expect inflation to be 2.8% over a five-year horizon, the lowest in a year and down from 3 .1% in June. Read more

On Thursday, Fed Governor Waller said he backed another 75 basis point interest rate hike this month, prompting a cut in bets on a 100 basis point rate hike. basis that rose after a Labor Department report on Wednesday showed consumer prices rose at an annual rate of 9.1% in June. Read more

Against a basket of currencies, the dollar was down 0.51% at 107.29. The index closed at a two-decade high of 108.65 on Thursday.

Some of Monday’s dollar weakness likely reflects profit taking after its strong rally, Brown said.

Yet investors remain largely hesitant to go bearish on the greenback. Read more

The euro, which has come under selling pressure in recent sessions amid uncertainty over a potential energy supply crisis in the euro zone, trimmed gains after a Reuters report that the Russian Gazprom (GAZP.MM) has declared force majeure on gas supplies from Europe to at least one major customer. Read more

The euro was last up 0.65% at $1.01545.

The New Zealand dollar was up 0.28% after an alarming inflation reading fueled speculation of more aggressive rate hikes, pushing bond yields higher. Read more

The Australian dollar, considered a liquid indicator of risk appetite, was up 0.68%. Commodity currencies also got a boost after Chinese authorities announced support for the real estate sector, boosting iron ore and copper prices, read more

Broad-based dollar weakness helped push the pound up 1.07% to $1.19975, but the British currency’s recovery was limited by political risks and lingering recession fears in Britain. Read more

In cryptocurrencies, bitcoin rose 5.95% to hit $22,164.95, extending its rally after a week-long selloff that took it below the $20,000 level.

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Reporting by Saqib Iqbal Ahmed; Editing by Kirsten Donovan

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