Dollar retreats as markets rethink Fed rate bets, eye ECB hikes

U.S. greenback banknotes are displayed on this illustration taken, February 14, 2022. REUTERS/Dado Ruvic

WASHINGTON, 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 charge 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, buyers have gotten cautious. (.CESIUSD)

“It is onerous for Wall Avenue to confidently say there’s a backside in place, so quite a lot of merchants are nonetheless seeking to fade no matter rallies emerge,” mentioned Edward Moya, senior market analyst at OANDA.

In opposition to its rivals, the greenback edged 0.12% decrease to 103.9. Earlier this month, it hit 105.79, its highest since late 2002.

Futures pricing reveals merchants now anticipating the U.S. Federal Reserve’s benchmark funds charge stabilizing round 3.5% from March subsequent yr, a pullback from pricing in charges zooming to round 4% in 2023.

“Immediately is a consolidation day,” mentioned Marc Chandler, chief market strategist at Bannockburn World Foreign exchange LLC.

“I believe that we’re simply ready for extra knowledge, and that knowledge comes out later this week,” he added, pointing to a readout anticipated on Friday detailing shopper costs within the euro zone.

In the meantime, the euro was buoyed by expectations that the European Central Financial institution will quickly elevate rates of interest for the primary time in additional than a decade.

“Everyone seems to be trying ahead to this primary charge hike that we will get from the ECB, and I believe that the dangers of a dovish hike are fading,” mentioned Moya.

The euro was up 0.27% at $1.0587.

The euro led gainers versus the greenback because the European Central Financial institution’s annual discussion board on central banking in Sintra, Portugal, received below approach with ECB President Christine Lagarde and U.S. Federal Reserve Chair Jerome Powell each attending the assembly. Markets will look ahead to any indicators of future coverage strikes.

Commodity currencies got here below strain on Monday as knowledge confirmed earnings at China’s industrial corporations shrank once more, albeit at a slower tempo, in Might after a pointy fall in April. learn extra

Elsewhere, Russia’s rouble weakened within the interbank market as Russia headed for its first sovereign default because the Bolshevik revolution a century in the past. learn extra

Cryptocurrencies stumbled, with the world’s largest cryptocurrency Bitcoin down 1.7% buying and selling at $20,810.34. It fell to as little as $17,588.88 earlier this month.

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Forex bid costs at 3:26PM (1926 GMT)

Reporting Hannah Lang in Washington; further reporting by Saikat Chatterjee in London; Modifying by Muralikumar Anantharaman, Jane Merriman and Susan Fenton

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