Skip to content

Awaiting Fed Decision, Dollar's Slump Eases Off; Investors Eye Economic Factors

The US dollar's downfall decelerates amid market anticipation for the upcoming Federal Reserve meeting.


Dollar's Plunge Stabilizes Amid Investor Wait-and-See

The US dollar experienced a slight downturn against a variety of currencies on Monday, following its greatest weekly fall this year in the prior week, as Treasury yields plummeted. However, it remained above the over-one-year lows touched on Friday, with no significant market influencers in sight.

Speculations on Federal Reserve's Next Move

Investors are set to observe a period of dollar consolidation this week, ahead of the Federal Reserve's meeting the following week. The central bank of the US is projected to raise rates by another 25 basis points, stirring significant market anticipation.

"The velocity of the dollar's drop last week seemed unusually swift," noted Marc Chandler, the head market strategist at Bannockburn Global Forex in New York. Chandler believes the market should stabilize, predicting a stronger dollar in the upcoming week.

Key Economic Data to Watch

The focal point of US economic data this week will be Tuesday's retail sales report for June. Nonetheless, this information is not anticipated to significantly influence the direction of monetary policy.

Future Fed Rate Predictions

Traders in Fed funds futures are factoring in an additional 32 basis points of tightening, with the benchmark rate anticipated to reach a peak of 5.40% in November. This indicates the market perceives a slim chance of further interest rate hikes post the Fed's July 25-26 meeting.

Impact of Inflation and Policy on the Dollar's Performance

Last week, US Treasury yields witnessed a sharp decrease due to the decelerating consumer and producer price inflation in June, enhancing prospects of a continuing moderation in price pressures and potentially more dovish monetary policy.

Euro-dollar Exchange Rate Outlook

Francesco Pesole, an FX strategist at ING, cautioned, "Euro/dollar appears slightly overstretched in the short term and could undergo a correction this week."

German Economic Forecast and its Global Impact

The German Bundesbank expressed on Monday that the euro zone's largest economy may see a contraction greater than the anticipated 0.3% fall a few weeks prior, notwithstanding a minor uptick in Q2. Germany, an industry-heavy nation, is taking the biggest hit from the decreased global demand for goods, which is a consequence of higher borrowing costs suppressing investment and increased consumer expenditure on leisure, travel, and other services post-pandemic.

International Monetary Fund (IMF) on Germany's Economy

The IMF stated on Monday that Germany's economic output might slightly decline this year due to the energy price shock and tightening financial conditions.

European Central Bank's Anticipated Move

The European Central Bank is also projected to increase interest rates by 25 basis points in the coming week.

Dollar Against Yen and British Pound

Against the Japanese yen, the dollar slid by 0.07% to 138.65, while it dropped 0.06% against the British pound to $1.3082, according to the latest figures.