- The US dollar rebounded after experiencing significant declines.
- The dollar recorded its largest weekly decline since November against a basket of six major currencies.
- The Australian dollar weakened following the appointment of Michele Bullock as head of Australia’s central bank.
The US dollar rebounded on Friday after experiencing significant declines in the previous sessions. Investors were consolidating their losses before the weekend. However, the overall trend of the dollar remained negative. The Fed contributed to this downward trajectory as it is near the end of its rate hike cycle due to weakening inflation.
Bloomberg dollar spot index (Source: Bloomberg)
The dollar recorded its largest weekly decline since November against a basket of six major currencies. The drop was amplified by the release of June’s US producer and consumer inflation data, which revealed a decrease in price pressures.
Recent data from Thursday indicated that US producer prices barely increased last month, resulting in the smallest annual increase in nearly three years. This followed a report showing modest consumer price growth in the previous month. However, Governor Christopher Waller expressed his hesitation to declare a resolution to US inflation as he advocated for additional rate hikes this year.
According to CME’s FedWatch tool, the markets still anticipate a 25 basis point hike from the Fed this month with a 95% probability. However, there are no expectations for further hikes throughout the rest of the year.
According to the Commodity Futures Trading Commission, investors have been speculating on a decline in the dollar for months, with short positions more than doubling since July 7.
However, these positions are still significantly below the levels seen in 2021. The dollar saw a 0.5% increase against the yen but was on track for its worst week since January.
Monex’s Given commented, “In the near term, we may observe a slight strengthening of the dollar. However, the Fed’s ability to convince traders about the possibility of two more hikes instead of just one on July 26 (date of Fed meeting) remains uncertain.”
Additionally, the Australian dollar weakened following the appointment of Michele Bullock as head of Australia’s central bank on Friday. She became the first female governor as the bank underwent a comprehensive reorganization.
Elsewhere, data released on Friday showed that the Eurozone came close to eradicating its trade deficit in May. The increase in exports of chemicals and machinery, along with a decrease in the value of imported energy products, particularly from Russia, contributed to this outcome.