Dollar suffers as traders anticipate a peak in US interest rates

13 Jul 2023 , 01:30 PM

A battered dollar was pushed even lower in Asia on Thursday as traders interpreted unexpectedly low U.S. inflation as a warning that interest rate increases will be nearly complete by the end of the month.

Overnight, the dollar saw its worst session in five months, losing more than 1% to the euro, dropping to its lowest level in more than a year, and suffering even worse losses elsewhere.

Early Asian trading saw the euro reach $1.1141, a new 15-month high, and the yen reach its highest level since mid-May at 138.16 per dollar, up 0.3%. The US Dollar Index decreased slightly to reach its lowest level since April 2022 at 100.47.

The Australian dollar hit a three-week high of $0.6796 while the New Zealand dollar achieved a two-month high of $0.6309.

Despite the tiny movements, they demonstrated traders’ belief that the dollar will continue to decline. In offshore trade, the yuan reached a one-month high against the dollar at 7.1604. Testing overnight highs were the pound and the franc.

In June, core inflation in the United States was 0.2% as opposed to the market’s forecast of 0.3%. The annual headline CPI decreased to 3% and has been going down ever since it peaked at 9.6% a year ago.

The Swedish and Norwegian crowns rose more than 2% and are expected to rise by nearly 5% for the week as currencies soared in Scandinavia, where inflation is sticky and central bankers anticipate future rate hikes.

Due to the clearing out of short sellers and the market’s attention shifting to the possibility that the Bank of Japan (BOJ) would soon alter its yield control policy, the yen has gained 4.8% against the dollar in five trading days in Asia and almost as much against other major crosses.

On Wednesday, Japanese government bond yields reached multi-month highs, although the highly watched 10-year yield is still at 0.46%, safely below the BOJ’s 0.5% target, indicating only moderate speculation on a policy change.

Sterling was trading at $1.2994, barely below the previous day’s peak of $1.3001. The Swiss franc, which overnight rose to its highest level since 2015, was trading at 0.8661 francs to the dollar, barely below that mark.

Later on Thursday, the European Central Bank meeting minutes from last month, data on European industrial production, and the British monthly GDP are also due.

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