The dollar index, which measures its rate against six global currencies, is now almost 2% below last week’s high and was 0.5% lower at $107.27.
The euro, the main component of that index, firmed 0.7% to $1.016, after falling below parity with the dollar last week.
“With equity markets still in positive territory, risk appetite is backso Fed Governor (Christopher) Waller’s comments backing off the 100 basis point hike have had the desired impact,” said Derek Halpenny, head of research at MUFG.
Waller and St Louis Fed Governor James Bullard said they preferred a 75 basis point interest rate hike at the July 26-27 Fed meeting, rather than the 100 basis point move that some had forecast after a higher-than-expected inflation reading.
Following the comments, futures linked to the short-term fed funds policy rate are trading firmly up 75 basis points.
However, speculators remain bullish on the dollar as weekly data from the US CFTC shows aggregate long dollar positions at seven-week highs, while short euro and yen positions grew. Halpenny highlighted “a whole list of risks” for the euro.
The European Central Bank is expected to raise rates by 25 basis points on Thursday and investors are waiting to see if it outlines plans to deal with rising bond yields in southern euro bloc states, especially Italy.
On the same day, Russia is due to resume gas supplies through the Nord Stream pipeline after a 10-day maintenance shutdown and failure to do so will scare markets, which already fear an economic downturn in the European Union.
“With Nord Stream and the political situation in Italy, there is no compelling rationale for a euro/dollar swingHalpenny said, contrasting the ECB’s expected 25 basis point move with the Fed’s expected 75 basis points.
Source: Ambito
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