On Monday, the US dollar declined against a basket of other major currencies, as investors were weighing in the impact of another interest rate hike by the US Federal Reserve. After all, the economy appears to be on the brink of recession.
The central bank meeting
The monetary policy meeting of the US central bank will end on Wednesday and it is expected that they will raise the interest rates by 75 basis points. Such a hike would effectively put an end to the support that was provided to the economy during the pandemic era.
Market analysts said that the dollar had come down from its highs because of the caution surrounding the Fed meeting. They said that markets would be eager to see if the hawkish stance of the Fed has been affected due to the softer data. While the economy does appear to have a solid momentum, there is no denying that increasing interest rates and high inflation are having an impact.
Economic data
The recent economic data indicates that a slowdown is taking place, while inflation continues to remain high. However, there was a rise in claims for unemployment benefits to its highest number in the last eight months and there was also a slump in the regional manufacturing gauges.
The week will also bring an advance reading of the gross domestic product (GDP) as well as personal consumption expenditures for the second quarter. The latter is the preferred measure of inflation of the US Fed.
On Sunday, Janet Yellen, the Treasury Secretary said that there was a slowdown in economic growth and inflation had climbed too high. There was also a 0.159% decline in the US dollar index to reach 106.520, while a gain of 0.05% was recorded in the euro, which took it up to a value of $1.0215.
Previous performance
The greenback recorded its biggest percentage decline in a week after two months in the previous week. This was because the demand for the safe-haven dollar had taken a hit because of a rally in US equities. Moreover, the euro had also climbed to a high of two weeks, thanks to the European Central Bank (ECB) hiking the interest rate by 50 basis points.
On Monday, Martins Kazaks, the governor of the Latvian central bank, said that the ECB was not done hiking the interest rates. The day also saw US equities climb higher modestly, with a number of companies slated to post their second-quarter earnings during the week. Investors are keeping an eye on the earnings report to determine if the economy is slowing down and for assessing the risks of a stronger dollar.
About 107 companies that are part of the S&P 500 have reported their earnings and 74.8% of them have managed to beat analyst expectations. In other currencies, there was a 0.37% decline in the Japanese yen against the US dollar, which brought it to $136.55, while the Sterling recorded 0.23% gains to trade at $1.203.
