Dollar plunges on profit taking, Fed rate path in focus

NEW YORK, July 15 (Reuters) – The dollar fell on Friday as investors gauged how likely the Federal Reserve is to raise interest rates when it meets later this month and investors took profits after a strong rally that sent the greenback to a Thursday.

The greenback surged as the Fed is expected to raise rates faster and further than peer central banks as inflation hits four-decade highs.

The dollar gained briefly on Friday after data showed U.S. retail sales rose more than expected in June. Read more

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“It’s a little better than expected, but I think everyone realizes that’s probably due to inflation,” said Joseph Trevisani, senior analyst at in New York. He added that investors were closing positions ahead of the weekend and after “a long, strong dollar run.”

Other data showed manufacturing output fell for a second consecutive month in June and US consumers tempered their inflation expectations in July. Read more

The dollar index fell to 108.04, down 0.47% on the day. It hit 109.29 on Thursday, the highest since September 2002.

The euro gained 0.57% to $1.0080. It traded as low as $0.9952 on Thursday, the lowest since December 2002.

Traders raised bets that the Fed will hike rates even faster after data on Wednesday showed annual U.S. consumer prices jumped 9.1% in June, the strongest increase in more than four decades. Read more

The odds of a 100 basis point move dipped, however, after two of the most hawkish Fed officials said on Thursday they would prefer a 75 basis point hike. Read more

On Friday, Atlanta Fed President Raphael Bostic also warned against “too drastic” action by the central bank, as it could undermine the strong hiring and other positive trends still seen in the economy. ‘economy. Read more

Fed funds futures now indicate an 81% chance of a 75 basis point hike and a 19% chance of a 100 basis point hike.

The euro faces two major potential catalysts next week, with the European Central Bank expected to raise rates by 25 basis points for the first time since 2011 at its July 21 meeting.

Investors will also focus on reopening the critical Nord Stream 1 gas pipeline to Germany from Russia, after it was closed for maintenance this week. It is scheduled to reopen on July 21, but European governments fear Moscow could extend that to restrict European gas supplies, disrupting storage plans for the winter. Read more

The dollar slipped 0.27% against the Japanese yen, after hitting a 24-year high on Thursday, as Japan’s central bank maintained a dovish stance that contrasted with hawkish moves by other central banks.

The Australian dollar gained 0.60%, after falling to a two-year low on Thursday on concerns over global growth.

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Bid rates for currencies at 3:00 p.m. (1900 GMT)

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Reporting by Karen Brettell; edited by Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

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