The US dollar experienced a decline for the second consecutive session on Friday, June 26, primarily influenced by recent economic data and a drop in oil prices, which tempered expectations of further rate hikes from the Federal Reserve. Despite the downturn, the dollar remained strong for the week and was positioned for its best monthly percentage gain since July, following a 13-month high earlier in the week.
Thursday’s economic data indicated that a key measure of US inflation aligned with economists’ forecasts while declining oil prices, which fell approximately 4 percent on Friday, prompted a slight easing in rate-hike speculation. Current market analysis suggests that investors are still anticipating a 25-basis point increase in rates from the Federal Reserve later this year, according to information from LSEG.
The dollar had a strong start to the week, securing gains for three consecutive days, as an uptrend initiated the previous week following a hawkish policy statement from the Federal Reserve under new chair Kevin Warsh. Joseph Trevisani, a senior analyst at FXStreet in New York, mentioned that the combination of Warsh’s leadership and recent market developments has contributed to what can be described as a “dollar bull market” since January. As such, the current pullback is not entirely unexpected.
The softer-than-expected inflation data released on Thursday was a significant factor in the dollar’s retreat. The dollar index, which gauges the currency against a selection of others, fell 0.19 percent to 101.32 while still on track for a second consecutive weekly gain. The euro increased by 0.18 percent, trading at around $1.1389.
Adding to the conversation around future rate hikes, Minneapolis Fed President Neel Kashkari suggested on Friday that the central bank might need to raise rates due to persistent inflation. Similarly, New York Fed President John Williams stated that inflation pressures are projected to moderate throughout the year but remain excessively high, leading him to adjust his timeline for bringing inflation back to the Fed’s 2 percent target.
In the oil market, US crude prices fell by 3.6 percent to $69.33 per barrel, while Brent crude dropped to $72.02, marking a decrease of 4.34 percent in one day. Overall, oil prices are heading for weekly declines nearing 10 percent, attributed to the departure of more oil tankers from the Strait of Hormuz.
The British pound experienced a slight gain, rising 0.09 percent to $1.3203, although it is on course for a second consecutive weekly decline. Meanwhile, against the Japanese yen, the dollar fell marginally, trading at 161.74. Analysts have noted that should the dollar surpass the 161.96 mark, it would lead the yen to its weakest level since 1986. However, for the week, the greenback has increased by 0.29 percent and is positioned for another weekly advance, buoyed by data showing that core inflation in Tokyo accelerated in June, providing additional support for the yen.
Wells Fargo analysts advised that tactically shorting the dollar against the yen might be beneficial in the lead-up to next week’s US jobs report, largely due to the risks of potential intervention. They highlighted that authorities may act on a weak or slightly soft US payrolls report, although expressed a long-term outlook that still favors the dollar in the weeks beyond early July.
