U.S. dollar declined Wednesday. What about Euro and Yen?
The dollar tumbled down on Wednesday. However, it managed to hold on to most of the previous day’s gains after skyrocketing on Federal Reserve officials’ hints at aggressive rate increases. The greenback also drew support amid a U.S.-China flare-up over Taiwan. The dollar index has lowered from a two-decade high against the basket of six major currencies in mid-July as traders reined in expectations of Fed rate hikes.
However, a trio of Fed officials signalled the central bank remains completely united on rising rates to a level that will put a dent in the highest U.S. inflation since the 1980s. That news boosted the dollar index by 0.8% that day. But the index dropped slightly on Wednesday, decreasing by a quarter of a per cent to 106.170.
Still, some analysts think that frictions after the highest-level U.S. visit to Taiwan in 25 years will likely help to bolster the safe-haven U.S. dollar for now. The Chinese government condemned House of Representatives Speaker Nancy Pelosi’s visit. It also began six days of military drills surrounding Taiwan. Meanwhile, Pelosi hailed the self-ruled island as one of the freest societies worldwide. Barring a further escalation, U.S. rate increase bets will likely remain the key driver of the greenback moves.
Currency analysts at MUFG also stated that it was clear that Federal Reserve officials had thought FX market participants had gone too far in paring back rate raise expectations. Consequently, the hawkish Fed comments had an immediate impact. They added that U.S. monthly jobs data is due on Friday. It will help set the tone for the dollar.
How is the Japanese Yen faring?
The yen lost more than 1% versus the dollar on Tuesday. It also declined by 0.1% today, trading at 133.355 yen per dollar. On the other hand, the euro jumped by 0.2% to $1.01855, despite separate data showing monthly drops in both retail sales and business activity in the euro area.
The British Pound also soared against the dollar, climbing up by 0.2% to $1.21770 on Wednesday. A Bank of England policy meeting is on Thursday. Investors expect the bank to raise rates for the sixth straight time.
